Professional Documents
Culture Documents
145
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The views expressed in this report are the authors and do not necessarily reflect those of the
Department for Business, Innovation and Skills.
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Contents
Executive Summary........................................................................................................................ 4
Acknowledgements ...................................................................................................................... 18
1. Introduction ............................................................................................................................... 19
2. Literature Review ...................................................................................................................... 20
3. Supply chain structure ............................................................................................................. 35
4. Distribution of on-cost within the Supply Chain.................................................................... 59
5. Structured interview analysis .................................................................................................. 63
6. Analysis - key themes emerging from the supply chain survey .......................................... 93
7. Conclusions and summary answers to the project objectives .......................................... 104
Annexes ....................................................................................................................................... 110
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Executive Summary
This report has been prepared by EC Harris LLP in support of the development of the
Industrial Strategy, Construction 2025: Strategy.
The objectives of the study are:
To identify areas where cost savings can be made in UK construction supply chains
and the barriers to achieving those savings.
The methodology developed to meet the objectives of the study includes a literature
review, a detailed study of supply chains made possible by direct support from main
contractors and their supply chains, and a series of structured interviews with members of
construction supply chains.
ONS, Output in the Construction Industry, June 2013, Table 2a. Construction Products Association, Construction
Industry Forecasts, Summer 2013.
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The study has also found evidence, through structured interviews, that challenging trading
conditions, very competitive bidding for work and use of tougher commercial terms related
to payment and risk transfer is contributing to a reduction of levels of cohesion in the
industry. A number of respondents have indicated that many of the behavioural gains
secured following the implementation of the Latham and Egan Reports risk being diluted or
lost altogether.
Finally, the study has found evidence that supports the point of view that current pricing
levels are unsustainable, in that price reductions have been achieved through price cutting
rather than cost reduction. Examples include the practice of rebidding work within the subcontract supply chain, acceptance of low margins and inadequate pricing of risk. The
consequences of unsustainable pricing can be seen in weakened balance sheets, which
reduce in turn the capacity of the supply chain to respond to an increase in demand.
Having insight into the capability and capacity of the UK construction industry together with
an understanding of its structure and the factors which have the greatest impact on
performance will be invaluable as the industry moves into recovery. This report provides
evidence-based insight to address this need.
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
including the business model, capability and delivery are highly relevant to the supply
chain agenda.
Results from the supply chain interviews presented in this report show that the
implementation of recommendations from these reports has had an impact on behaviours
within the supply chain although it is less clear whether clients have benefitted from the
change. There is also plenty of evidence that the industry has returned to type, becoming
more adversarial and less integrated, as a result of the current downturn.
An analysis of the structure and distribution of spend within the main contractors
Tier 2 supply chain, together with a small sample of sub-contractors Tier 3 supply
chains. This analysis provides an insight into the complexity of supply chain
management and the degree of spend aggregation. This analysis is presented in
section 3;
An analysis of on-costs within the construction supply chain identifying the costs
of mark-ups for profit, overhead and risk, and considering whether any of these
costs are duplicated. This analysis is set out in section 4;
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The detail of the analysis, together with a graphical analysis of the distribution of work in
the supply chain is presented for each project enabling contrasting approaches to supply
chain management and bundling of the work to be compared.
Most construction work is delivered at the Tier 3 level or below meaning that there are
two tiers of management activity, procurement etc. above most construction activities.
The implications of a complex supply chain for construction include issues of efficiency
associated with the management of activities on-site rather than in a factory, and the
opportunity costs associated with forming a new team for the delivery of each project a
common occurrence with conventional procurement of single projects based on a
competitive tender.
The key findings of the analysis of supply chain structure can be summarised as follows:
All projects in the sample feature a large number of Tier 2 suppliers (that is,
specialist contractors such as cladding, building services or finishes contractors).
To have 50 to 70 Tier 2 suppliers and sub-contractors is not uncommon;
All projects involved a large number of low value transactions within each supply
chain. For example we found that typically 25% of Tier 2 contracts on large
contracts with a value in excess of 15 million, were for values below 10,000;
On all projects, between 50% and 75% of the total value of the work is accounted
for by a small number of major Tier 2 sub-contractors and the main contractors Tier
1 site management team. Typically 4 or 5 sub-contractors are focused at Tier 2 on
major packages associated with sub-structures, structures and envelope, and
building services. Although much of the value of construction work is aggregated in
this way, our study showed that actual delivery of these packages is undertaken by
a disaggregated Tier 3 supply chain. As a result, coordination of activity on site has
a crucial role in influencing performance;
For the delivery of complex sub-contracts, we found at least three tiers within the
supply chain, providing input into procurement, logistics and coordination, ranging
from the main contractor (Tier 1) to the sub-sub contractor doing the work at Tier 3.
Complex sub-contracts might involve elements of design, complex components and
integration with other sub-contracts, such as the structure or building services.
Given the degree to which final delivery of the work is highly fragmented, the study
found that there is a limited opportunity to consolidate the supply chain by removing
costs of Tier 2 intermediaries, due to their role in coordinating the work of installers
at Tier 3 and below;
Both Tier 1 and 2 contractors are involved in a large number of small transactions
with contractors, service suppliers and material suppliers doing work on their behalf.
Evidence from both Tier 1 and 2 contractors suggests that the supply chain
becomes more fragmented for contractors involved in the actual delivery of work as
opposed to its coordination. Analysis of the supply chain of a regional Tier 1
contractor and a Tier 2 structures sub-contractor both, who are involved in the direct
delivery of construction work, shows that these businesses have the most complex
supply chains;
7
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Results of the analysis point to the important role that material producers, plant hire
businesses and intermediaries such as builders merchants have in facilitating the
ready availability of construction products and services for small and low value
transactions. These organisations operate at all tiers in the supply chain, from Tier
2 and Tier 4 and below.
The findings of the study suggest that the construction industry is not currently optimised
for rationalisation of the supply chain. According to the review undertaken by the research
team, the existing industry structure has affected previous initiatives to improve
performance. Furthermore, the design of these initiatives had been influenced by a lack of
appreciation of the structure and complexity of the supply chain. The conclusion is that
whilst downward competitive pressure through the supply chain facilitates cost reduction,
the current structure of the supply chain may not secure best value delivery through the
coordination of activities on site.
Integrator (Tier 2) 6 to 7%
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The evidence of high overheads in some specialist sub-contracts may justify some delayering of the supply chain structure.
A number of respondents, mostly specialist contractors, reported that they secured work
on a zero per cent profit margin. Higher on-cost ranges tend to be associated with smaller
packages of work, together with a greater work content associated with product design
and manufacture. For example, a specialist fabricator of architectural metalwork will need
to recover higher on-costs than a decorating sub-contractor.
Based on the results of the study, our assessment of the total proportion of a contract price
that is attributable to supply chain profit margin and overhead margin is likely to be in the
range of 18 to 20%. This assessment is not an average but takes into account the
balance of work content on a typical project.
In the short term, and as the industry recovers from recession, these costs may increase
as the supply chain takes steps to improve margins to levels which are sustainable. Given
the volume of coordination of activity on site, we see limited opportunity to reduce costs
through the dis-intermediation of the supply chain.
The research team also set out to collect information on the level of pricing of risk within
tenders. However, much less information was obtained and it is not possible to prepare an
estimate for this on-cost. Results of the structured interviews indicate that risk is not being
fully priced in tender submissions.
The pricing of risk represents a risk to both sides of the pricing equation. Current market
conditions permit the transfer of high levels of risk to the supply chain at a low cost. As
workload increases, this balance is likely to shift, with suppliers pricing risk on a more
commercial basis as well as seeking a change in the balance of allocation. Clients and
main contractors will need to manage this transition effectively to minimise the effect of risk
premium pricing on overall project costs.
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Hypothesis 1: Financial
arrangements
Hypothesis 2: Selection of
the Supply Chain
Hypothesis 3: Design
management
Hypothesis 4: Construction
site management
Hypothesis 5: Price
determination
Theses hypotheses were tested trough structured interviews with Tier 1 and Tier 2 supply
chains. An explanation of the methodology and a full description of the hypotheses are set
out in section 5 of the report, Structured Interview Analysis.
10
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
12
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Effect of behaviours and soft skills Project Managers (PM) have a key role in
connection with project performance
o Behavioural issues within project teams were identified as a very important
positive improvement driver. Interviewees identified the contractors project
manager as having a key role in positively influencing these behaviours;
o Due to the complexity of the supply chain, a high level of informal
collaboration, the need to accommodate change and low margins the
research demonstrates that effective site management has a key role in
delivering successful outcomes for clients and constructors;
o Feedback from the supply chain suggests that investment in the
improvement of site management skills will help to drive better performance.
Management of change the low cost of change comes at a price for the
industry
o Construction has developed processes to accommodate change in design
and construction. However, by comparison with other industries such as IT, it
can be argued that construction accommodates change too readily and at
too low a cost at the point of change;
o Evidence from the study suggests that the volume of change is high, comes
from too many sources, and can be highly detrimental to project
performance;
o The ability to introduce change is the industry norm, but is seen by the
supply chain as a source of waste, a cause of uncertainty and a catalyst for
greater friction between trades. Many firms stated that the cost of
implementing change outweighed any income premium they might receive
as a result of the change;
o Change is a major source of waste. The ability to introduce changes during
design and construction is desirable, but the industrys presumption should
be in support of managed change control in support of better decisionmaking.
Certainty of outcome and risk transfer costs of risk transfer will be built into
future project costs
13
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Effect of demand and market conditions a low entry price may result in
higher overall costs
o Evidence from supply chain interviews clearly shows that low levels of
demand and continued tough trading conditions have a negative effect on
firms, relationships and project performance;
o Firms appear to be hoping that the market will return to conditions seen prior
to 2008. There was little evidence either of innovative or adaptive responses
to current market conditions, or of a belief that current conditions and price
levels represented a new baseline;
o This optimism, which is not supported by workload forecasts, weakens the
industrys current focus on cost and waste reduction initiatives that are
essential to sustain long-term competitiveness;
o Interviews provide evidence of a shift in bargaining power within the supply
chain, which has been used push down prices, rather than to reduce costs
by changing ways of working;
o The evidence suggests that supply chain members will seek to repair
margins when the supply and demand balance changes. Action will need to
be taken to eliminate costs elsewhere so that the supply chain can be
sustained whilst Industrial Strategy cost reduction targets are met.
14
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The commentary in the report defines each issue, summarises the insight obtained from
the structured interview, and sets out implications for industry strategy, feeding into
recommendations for performance improvement.
Greater coordination of design and assembly across the supply chain, possibly
based on BIM, recognising the dis-aggregated structure of the supply chain;
15
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Wider adoption of the integration role of supply chain management, either at Tier 1
or 2, focused on the management and coordination of related trades in a disaggregated supply chain.
The promotion of an agenda for change at all levels of the supply chain, countering
the view that current ways of working will deliver Industrial Strategy vision;
Promotion of the awareness of all sources of waste in the construction industry, not
just physical waste;
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
17
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Acknowledgements
We would like to thank the EC Harris research team, led by Simon Rawlinson, including
Steve Dixon, Jonathan Edwards, Brian Green, Juliet Hirst, Henry Ho, Simon Hughes, Alun
Jones and Andrew Stephens. We would also like to thank Professor Will Hughes of
Reading University for his support in the development of the research methodology.
We would also like to thank the anonymous main contractors and sub-contractors, and in
particular their site staff who contributed data to the supply chain analysis, and who
provided true insight through their contributions to structured interviews.
18
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
1. Introduction
1.1 Project Objectives
The objectives of the project, commissioned under the direction of the Government Chief
Construction Advisor to inform the development of the 2013 Construction Industry Strategy
are as follows:
To identify areas where cost savings can be made in UK construction supply chains
and the barriers to achieving those savings.
Early findings from the studys research phase were incorporated into the Construction
Industry Strategy informing the evidence base and also forming the basis for
recommendations focused on the development of capability within the workforce to
increase the effectiveness of on-site operations.
1.2 Overview
The project has three components which are detailed in this report:
A literature review, focused on the contribution of the supply chain and the impact of
the 1994 to 2009 improvement agenda.
The report also includes an extensive discussion based on the findings of the study
focused on identifying the main drivers behind improved performance.
19
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
2. Literature Review
The purpose of the literature review is to focus on the industrys understanding of the
contribution of the supply chain to project performance and the impact of the most
significant improvement initiatives on the ability of the supply chain to contribute to project
outcomes.
The literature review also considers whether supply chain issues and constraints have
been considered fully in the design of previous improvement initiatives.
Source: ONS Annual Business Survey (ABS), 2011 provisional results. Data is for (i) construction contracting industry;
(ii) provision of construction related professional services; and (iii) construction related products and materials.
The ABS is preferred as it is the only source with sufficient detail to allow for the calculation of GVA for the wider
construction sector, and for comparison of wider construction with other industries. It should be noted that the ONS
National Accounts (2011) gives GVA for construction contracting alone as 90 billion as it makes adjustment for output
unrecorded by the ABS; a figure for wider construction cannot be calculated from National Accounts, but it is likely to be
higher.
3
Ibid.
Source: BIS analysis of ONS Labour Force Survey data, non-seasonally adjusted; January March 2013. Data is for
wider construction sector as per definition in the opening paragraph.
20
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Davis, M. (1995) Achievements, Action Plans and How Clients Can Help. The Latham Implementation
Cox, A. Townsend, M (1997) Latham as half-way house: a relational competence approach to better practice in
construction procurement. Engineering, Construction and Architectural Management 4 | 2,143-158
Latham, M (1993), Joint Government/Industry Review of Procurement and Contractual Arrangements in the United
Kingdom Construction Industry - Interim Report: Trust and Money. London, HMSO.
21
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The need for a code of practice dealing with project management and tendering
issues.
Hughes, W., Hillebrandt, P., Greenwood, D., & Kwawu, W (2006), Procurement in the construction industry: The impact
and cost of alternative market and supply processes, New York, Taylor & Francis.
10
Latham, M (1994), Constructing the Team, Final Report of the Joint Government/Industry Review of Procurement and
Contractual Arrangements in the United Kingdom Construction Industry [Latham Report]. London, HMSO.
11
22
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
activities that have been driven by the recent industry downturn. Our view is that some of
the key tools needed to enable the supply chain to contribute to long term cost reduction
and performance improvement are in need of repair and reinforcement.
To advise the Deputy Prime Minister from the clients perspective on the
opportunities to improve efficiency and quality of delivery of UK construction, to
reinforce the impetus for change and to make the industry more responsive to
customer needs.
o Quantify the scope for improving construction efficiency and derive relevant
quality and efficiency targets and performance measures which might be
adopted by UK construction;
o Examine current practice and the scope for improving it by innovation in
products and processes;
o Identify specific actions and good practice which would help achieve more
efficient construction in terms of quality and customer satisfaction, timeliness in
delivery and value for money;
o Identify projects to help demonstrate the improvements that can be achieved
through the application of best practice.
Committed leadership;
12
Egan, J (1998) Rethinking construction: the report of the construction task force (The Egan Report). Department of the
Environment, Transport and the Regions, London: HMSO
13
23
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Commitment to people.
Opportunities for driving change and improvement were identified under the themes of
improving the project process and enabling improvement these are set out in more detail
in Annex 2.
Rethinking Construction insight for the supply chain agenda
When discussing the construction supply chain, Egan identifies the supply chain is critical
to driving innovation and to sustaining incremental and sustained improvement in
performance (Egan 1998: paragraph 45) 15 . Egan was right to highlight the critical
contribution, but given the highly fragmented structure and organisation of the construction
supply chain, its positioning as an agent of change may have been ambitious.
The Egan Report also examined commercial processes. In a review of the industry reform
agenda, Hughes et al (2006) 16 highlighted Egans particular references to the need to
replace competitive tendering with long term relationships based on clear measurement of
performance and sustained improvements in quality and efficiency (Egan 1998:
paragraphs 67-71). This involves new criteria for the selection of partners based, not on
lowest price, but ultimatelybest overall value for money (Egan 1998: chapter 4).
The findings of the supply chain survey has shown widespread acknowledgement of the
benefit of long term relationships, together with a low level of recognition of the use of
performance measures. It can be shown that the industry adopted many of the
behavioural recommendations of Egan whilst times were good, but did not necessarily
adopt the disciplines required to assure whole-life value to clients over a full business
cycle.
Hughes et al (2006) also noted outcomes related to the report including the Movement for
Innovation (M4i) and the Best Practice Programmes managed by the DETR. The Egan
Report also contributed to the development of Best Value Procurement, albeit within the
context of European Procurement Regulation.
Taken together, Latham (1994) and Egan (1998) are seen as the start point for the
partnering approach defined by Egan (1998, p.9) as involving two or more organisations
working together to improve performance through agreeing mutual objectives, devising a
way for resolving any disputes and committing themselves to continuous improvement,
measuring progress and sharing the gains.
15
16
Hughes, W., Hillebrandt, P., Greenwood, D., & Kwawu, W (2006), ibid
24
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
17
Wolstenhome, A. (2009) Never Waste a Good Crisis A Review of Progress since Rethinking Construction and
Thoughts for Our Future, Constructing Excellence
25
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Figure 2.1: The main benefits from Rethinking Construction identified by the
construction industry
The Wolstenholme Report found that over half or those surveyed considered the benefits
of partnering were patchy' and that people paid lip service to the Egan agenda. The
report claimed that commitment to collaboration was only skin-deep (Wolstenholme 2009,
p.8), however, parts of the public sector has made some significant moves in the right
direction (Wolstenholme, p.13) 18 .
The Wolstenhome review identified a set of blockers to progress under the following four
interdependent themes and summaries:
Business and Economic Models
Lack of Cohesive Industry Vision. A lack of joined-up thinking in Government and
the industry about how the built environment contributes to the UK's long-term
prosperity and the aim of achieving a sustainable, low carbon economy.
18
Few Business Drivers to Improve. For much of the supply chain, there are few
business or economic drivers to deliver meaningful change. They are prepared to
accept stable, though unexciting returns, rather than attempt changes that are seen
as being 'too difficult'.
26
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Construction 'Does not Matter'. The low impact of construction costs and outcomes
on the client's business case means that in some sectors the performance of the
construction supply chain is not sufficiently important to motivate external demand
for change.
No Incentives for Change. Most client business models are focused on short-term
gain and do not reward suppliers who can deliver long-term sustainable solutions.
Industry culture is driven by Economic Forces. Many clients and suppliers appear
to have abandoned partnering behaviour (if they ever adopted it in the first place)
and returned to transactional relationships (as a consequence of the downturn).
Capability
Lack of Visible Leadership. The industry lacks enough leaders who can
communicate their vision and engage employees to think about the value of their
input beyond their tactical horizon.
Failure to Attract New Talent to the Industry. The industry's poor image means that
it does not attract sufficient high quality, highly motivated graduates, nor do we
promote our industry effectively to women and members of ethnic minorities.
Lack of Purpose. The industry lacks a clear mission, based on a strong ethical
stance, for the contribution it makes to society. As a result, it struggles to present an
effective image to the public and Government.
Delivery Models
Few Clients Demand a Best Value Solution. Clients struggle to articulate what
value means to them, and too few projects develop a clear brief that defines their
business, social and environmental requirements. Clients are unaware of the
potential value that integrated supply chains can bring, and fail to engage them
early enough, relying too often on consultants specifying traditional solutions
through dated procurement methods, such as lump-sum contracts based on a
consultant teams design.
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Contractors would Rather 'Push' Risk down the Supply Chain than 'Pull' the
Opportunities Back Up. Contractors' mind-sets are to procure in order to pass risk
down the supply chain, rather than to draw up opportunities to create value by
working as an integrated team. The low penetration of cultural change has been
exposed by the current economic downturn, with evidence that clients and main
contractors are now reverting to type.
Industry Structure
Lack of a Single, Coherent Voice for the Industry. Not only are the key messages
from different industry bodies diluted, they are often contradictory.
Too Many Industry Bodies. The complex industry structure sitting in silos and too
many industry bodies makes it hard to see the bigger picture. trade associations
focus on transactional issues within their own technical specialist silos.
Report recommendations
The Wolstenholme Report identified 8 future areas for action identifying them as Big
Themes for Action and Some Quick Wins (Wolstenholme, 2009 p. 25-26). In the literature
review, we summarise the headings. Further details are set-out in Annex 2:
Focus Much More on the Environment align with the climate change agenda to
deliver a low carbon economy.
Find a Cohesive Voice for Our Industry promote a single industry voice and focus
on delivering better performance to key clients like Government.
Adopt New Business Models that Promote Change - find ways to incentivise long
term value creation.
Procure for Value - All customers in the chain need to professionalise their
procurement to achieve best value, rather than focusing on lowest price.
28
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Suppliers to Take the Lead - Clients will struggle to lead the way we need
suppliers to show how they can create additional value.
A further 22 additional quick wins are identified in the report. Organised by Industry,
Government and Client they range from industry training and development of young staff
and future leaders, to further government policy development to incentivise innovation.
More effective client working with their supply chain is identified as an opportunity to
develop more innovative options for risk transfer and to create relationships based on trust
with consultant and suppliers and evidence a pipeline of opportunity (Wolstenholme,
p.27). The quick wins are scheduled in Annex 2.
Never waste a good crisis insight for the supply chain agenda
When the Wolstenholme report was published, some observers noted that as the economy
and construction markets had grown, the industry had taken its eye off the reform agenda.
From the perspective of industry performance improvement, the period up to the 2008
slowdown had been wasted.
The analysis presented in this report confirms the relevance of many of the report findings,
at the level of the individual project supply chain. In particular, the themes of the business
model, capability and delivery occur repeatedly in survey findings. Furthermore, the highly
disaggregated structure found in the supply chain helps to explain why complex solutions
to the construction performance challenge sometimes struggle for widespread adoption.
Given that the industry will be challenged to deliver higher performing buildings to an
increasingly challenging cost and carbon agenda, the lessons that can be drawn from the
Wolstenholme review are very important, as they highlight commercial and behavioural
norms that will combine to limit the impact of performance improvement initiatives.
Industrial Strategy needs to address these blockers as well as identifying the targets which
will direct improvement.
The supply chains position in the improvement agenda
In summarising Latham (1994), Egan (1998) and Wolstenhome (2009) it is clear that a
large number of report recommendations have a common basis. Constant repetition
suggests either that the industry did not meet improvement targets, or worse still, did not
deliver change at all.
Evidence from the supply chain interviews detailed in this report provides clear indication
that the implementation of Latham and Egan recommendations did have some effect on
improving behaviours within the supply chain. However, clients may not always have
benefitted from these changes. With the downturn and increased competition for work,
there is evidence to support the Wolstenholme view that the industry has returned to type
as prices have been driven lower by competitive bidding.
Looking forward, the challenge for the industry is that current price levels need to be
sustained or reduced to enable continuing investment by the private and public sector.
The role of the supply chain in driving value, reducing cost and eliminating waste will be
crucial. Implementation of the Industrial Strategy should take account of this.
29
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
19
Contractors engage key members of their supply chain in the design process where
their contribution creates value;
Value for money and competitive tension are maintained by effective price
benchmarking and cost targeting, by knowing what projects should cost, rather than
through lump sum tenders based on inadequate documentation;
20
Cabinet Office (2012) Government Construction Strategy One year on report and action plan update July 2012
[online]
30
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Supply chains are, where the programme is suited, engaged on a serial order basis
of sufficient scale and duration to incentivise research and innovation around a
standardised (or mass customised) product;
There is an alignment of interest between those who design and construct a facility
and those who subsequently occupy and manage it.
These are recurrent themes, seen in improvement strategies, from Latham (1994) to
Wolstenhome (2009). Commentators have noted a greater focus on the use of managerial
concepts to drive higher performance (Fernie et al, 2006) 21 such as supply chain
management. However, whilst commentators such as Fernie et al (2007) 22 identify the
high level of acceptance for the need for supply chain management theory, they caution
that there is an apparent lack of informative and descriptive supply chain management in
practice and even less reflection on supply chain management theory.
Industry Structure and implications for supply chain performance
The industry is famously fragmented. Wolstenholme (2009, p.22) identified the structure
of the industry as number four of his key blockers to change, noting that the industry (in
2009) was dominated numerically by SMEs, large firms (over 80 employees) accounting
for 52% of the value of work done, 36% of employment but only 7% of all contracting
businesses and a tiny fraction of the stock market.
Egan (1998) suggested there were strengths and weaknesses resulting from the variance
in size and scale of businesses in the industry and Wolstenholme (2009) agreed that a
large number of small firms enable the industry as a whole to cope with variations in
workload.
However, sub-contracting is at the root of a low level of vertical integration in the industry,
which blocks the free flow of information and innovation through a significant number of
industry bodies, and results in the lack of a single clear voice for the industry.
(Wolstenholme 2009, p.22). Our supply chain analysis has helped to emphasise the
extent to which on-site management and coordination activities contribute to overall project
performance. Given well known skills constraints, a reliance on highly capable on-site
management capability increases risks of variance in project performance.
Procurement and the supply chain
Some developments in procurement have sought to address a fragmented approach to
project delivery through partnering and supply chain integration. New procurement options
21
Fernie, S., Leiringer, R. and Thorpe, A. (2006), Rethinking change in construction: a critical perspective, Building
Research and Information, Vol. 34 No. 2, pp. 91-103.
22
Fernie, S., and Thorpe, A. (2007),Exploring change in construction: supply chain management, Construction and
Architectural Management Vol. 14 No. 4, 2007 pp. 319-33.
31
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Identify key issues and challenges which the UK construction industry may
encounter over the long term; and,
Assess their potential implications for industry employment, skill and training
requirements.
The report ran scenarios to support the identification of key trends and issues in the UK
construction industry, as follows (Construction Skills, 2008):
Speed of innovation within the sector - Historically, the rate of innovation in the
construction sector has been below par
Demographics - The industry is ageing and will compete for skills against the backdrop of
the UKs ageing demographic profile.
Health and Safety Investment in safety skills and attitudes.
23
Hughes, W., Hillebrandt, P., Greenwood, D., & Kwawu, W (2006), ibid.
24
Gray, C and Flanagan, R (1989) The changing role of specialist and trade contractors. Ascot: Chartered Institute of
Building.
32
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The literature review has demonstrated the size of the industry and the strategic
impact of its efficiency. The impact of supply chain structures in the construction
industry is widespread and pervasive.
There are well-established links between supply chain health, customer satisfaction
and image and rewards for the industry. Most work and employment sits within
lower tiers of the supply chain.
The industry is affected by long term issues around under achievement, low levels
of profitability, investment and training etc. The impact of the five-year long
construction downturn has exacerbated these problems.
The supply chain has a key role as an agent of change. The supply chain is rightly
identified as being at the heart of performance improvement initiatives, but there
25
CITB (2012), Blueprint for UK Construction Skills 2012 2016 [online]; available from
http://www.citb.co.uk/Documents/research/csn%20outputs/blueprint-uk-construction-skills-2012-2016.pdf [accessed June
2013]
33
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
has been limited consideration of the ability of the supply chain to respond to these
opportunities.
Improvement measures were only partially adopted when times were good.
Industry commentary makes it clear that there has been a reversion to type with
respect to many commercial activities. It is also claimed that the industry focused
on soft issues when markets were healthy but ignored many performance improving
disciplines such as benchmarking.
There are many continuing challenges associated with supply chain engagement in
common delivery models including pushing risk down the supply chain, lack of
integration, or limited early sub-contractor involvement. Often this is described as
reverting to type. The implication is that there are deep seated barriers to
improvement that need to be understood and tackled directly for change to occur.
The diagnosis presented in the three major reviews has been consistent in its identification
of the challenge and its optimism that the industry is in a position to remedy itself. The low
level of pick-up of the quick wins of the Wolstenhome Review is good evidence of how
difficult it is for the industry to pursue its own long-term interest.
This very powerful inertia, potentially generated by the structure of the industry itself,
needs to be at the forefront of planning for future improvement initiatives.
34
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Extensive learning curves associated with project processes, effective team working
and other aspects of collaboration;
Reduced opportunities to drive out waste and reduce cost through supply chain
aggregation, volume purchases and so on.
With respect to the volume of imported materials and services, the implication of a large
number of transactions is that the transactions become commoditised and the purchasing
decision is made on simple commercial criteria such as price and availability. This is
particularly the case for construction materials a finding which is supported by the results
of the structured interview survey. The implication of this finding is that there are few, if
any opportunities to build a position of competitive advantage through product of service
differentiation for domestically produced materials, where these are subject to overseas
competition.
35
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The analysis presented in this section is based on the following range of projects:
One main contract (Tier 1) falling within a value range of 1-2 million. This project
has been sourced from a regional contractor and is representative of medium scale
public sector work sourced via frameworks. The main contractor uses some direct
labour for self-delivery.
Six sub-contracts (Tier 2) with values ranging from 1 to 5 million. The focus of
the analysis is on large, complex sub-contracts which have an equally extensive
and complex supply chain. These sub-contracts are associated with the projects
undertaken by national contractors. We did not examine the supply chain
structures associated with simple or low value sub-contracts, or sub-contracts for
the supply of services. A detailed analysis of four of the sub-contracts is included in
the analysis.
The selected contracts have been chosen to reflect practice in both the private and
public sectors, and involved the delivery of high quality commercial office buildings
and the construction of new-build Academies. The project delivered by a regional
contractor involved the refurbishment of a health sector building. Where possible,
the team identified pairs of buildings that were delivered using contrasting
approaches to procurement, so that the widest possible range of insight could be
drawn from the analysis and the structured interviews.
The size of the sample set out in this report meets targets agreed with BIS, which reflect
the teams recognition of the challenges associated with obtaining detailed financial data
from the construction supply chain. Supply chains which are excluded from the analysis
include:
Definitions of the supply chain terminology used in the analysis are as follows:
36
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Description
Example
Tier 1
Tier 2
Tier 3
Tier 1 contractors are typically termed main contractors, and many Tier 2 contractors are
described as specialist contractors. Labour-only sub-contractors typically operate at the
third Tier. The supply chain interviews described in section 5 are focused mainly on Tier 1
and 2 contractors.
In a small number of instances, we found examples of Tier 2 work being delivered (or the
delivery being managed) by a division of the main contractor for example, the delivery of
the building services sub-contract. This aspect of the analysis demonstrates that the final
costs associated with physical construction work can occur at all levels of the supply chain.
37
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The structure of the supply chain described by sub-contractors and suppliers is analysed
in more detail in sections 3.4 and 3.5 below.
The analysis also distinguishes between three cost categories that do not involve subcontracting. Direct works describe costs that are related specifically to construction work.
We have encountered a number of examples of contractors at Tiers 1 and 2 who
undertake construction themselves, and this category highlights this allocation of work.
Internal costs are costs related to management, supervision and logistics on a project
the activities normally associated with main contractors and some specialist contractors.
External cost is a category that has been used to isolate incidental expenditure, where this
was recorded by the contractor. A more detailed explanation of the categories used is set
out in table 3.2 below.
Table 3.2: Supply chain cost categories
Cost category
Definition
Example
Sub-contractor
Sub-contracted
construction, including
design, components and
materials, labour and
supervision
Supplier (Services)
Sub-contracted services
including design
consultancy and site
services
Supplier (Materials)
Components or products
purchased directly for
incorporation into the
works by direct labour or
by others
Direct Works
Construction work
undertaken by the
contractor at the head of
a particular supply chain
External Costs
Incidental business
expenses
Internal Costs
Contractors project
management costs, internal
charges for plant and equipment,
internal recharges for businesswide activities, contribution and
allowances for profit and risk
Note: It is not possible to define sub-contractors or suppliers as being either Tier 2 or 3. The analysis
presented in this report shows that Tier 2 sub-contractors typically have a complex network of subcontractors and suppliers. In many cases members of Tier 3 will also source work from sub-contractors and
suppliers.
38
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Project 2
Project 3
Project 4
Project 5
Commercial
Office
Commercial
Office
Academy
Academy
Health
Refurbishment
Tier 1 Main
Contractor
Tier 1 Main
Contractor
Tier 1 Main
Contractor
Tier 1 Main
Contractor
Regional
Main
Contractor
56
38
71
58
71
Average value
229,500
618,300
171,700
221,700
7,600
Median value
49,000
250,900
49,700
29,500
1,300
1,820,000
3,619,000
3,445,000
3,190,000
127,300
708,300
2,256,000
446,000
587,100
18,000
3,200
24,400
2,835
9,700
90
41.1
63.2
36.6
29.3
1.4
58.9
36.8
63.4
70.7
98.6
50.0
18.4
50.7
60.3
98.6
26.8
25.4
25.9
76.1
Maximum value
Suppliers
>100,000 (%)
Suppliers
<100,000 (%)
Suppliers
<50,000 (%)
Suppliers
<10,000 (%)
The analysis is focused on the number of suppliers and the size of the transactions
paying particular attention to the complexity and disaggregation of the supply chain. The
analysis in Table 3.3 confirms that the construction supply chains analysed are diverse
and complex. On 4 out of the 5 projects analysed, the main contractors have over 50 subcontracts/suppliers in Tier 2. The average value naturally varies depending on the size of
the contract, but on three out of the four large contracts, the average is close to 200,000
By contrast, the average value of contracts on the project submitted by a regional
contractor is 7,600, which is not only a much smaller value, but also a smaller proportion
of the contract sum 0.5%. In this case, the project has over 70 participants in the Tier 2
supply chain. The low transaction size on smaller projects indicates a high level of SME
involvement but also has implications for the level of administration associated with
projects.
Each project features a small number of large value subcontracts at Tier 2. Typically there
are 3 or 4 large value sub-contracts covering sub-structure, structure, envelope and
39
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
services that account for a high proportion of the work. Whilst this suggests a degree of
economy of scale, the analysis of the Tier 2 sub-contract supply chain shows that the 3rd
Tier delivering these works is also highly fragmented. The two Building Services subcontract supply chains examined in section 3.5 each have over 25 Tier 3 suppliers. It
should be noted that all of the analysis of Tier 2 sub-contractors was carried out in
connection with complex works delivered by national main contractors. No analysis of Tier
2 contractors working on behalf of regional contractors was undertaken as part of this
project.
The key findings of the analysis can be summarised as follows:
All projects feature a large number of Tier 2 suppliers. Low median values for four
out of five of the contract supply chains indicate that there are a high number of low
value transactions within the supply chain;
On all projects, between 50% and 75% of the total value of the work is accounted
for by a small number of major sub-contractors and the main contractors site
management team. The allocation of workload into packages has the effect of
aggregating much of the value of construction work, albeit that delivery is
undertaken by a disaggregated Tier 3 supply chain;
Despite the level of aggregation of spend around high-value packages, all of the
supply chains examined had an extended tail of smaller value, specialist providers.
The evidence for this is:
o The high number of suppliers with contract values of under 100,000. For
three of the national contractors, over 60% of sub-contracts by number have
a value under 100,000. For the regional contractor, only 1 sub-contract
exceeds the 100,000 threshold.
o The number of suppliers with contract values under 10,000. This ranges
from 15 to 20 on contracts delivered by national contractors, to over 50 for
the project delivered by a regional contractor.
The low average value of transactions relative to the maximum sub-contract value. Two
main contractors appear to follow a procurement strategy based on larger packages, and
in this case, the average value is 30 to 40% of the maximum. For the other two national
contractors, the average value was 10-20% of the maximum, indicating a more dispersed
supply chain. For the regional contractor, the average value is 5% of the maximum
indicating a critical dependency on the performance of one specialist contractor, and a
high volume of small transactions;
40
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
An explanation of the data presentation is given in Figure 3.1. In presenting the results,
we have adopted a base 10 number system, similar to the system used on a decimal
abacus. Units of expenditure (millions, hundred thousands, ten thousands etc.) are plotted
on the histogram. We have chosen this format for presentation because the value range
across the sub-contracts is so wide that conventional representation of the value of each
sub-contract cannot be used. The value of most packages is not visible if a conventional
scale based on either length or area is used. Using the base 10 approach, packages
ranging from 1 million + to 1,000 can be compared using the same axis.
Figure 3.1: Explanation of the graphical presentation of the supply chain analysis
By using a base 10 scale, we are able to communicate the key characteristics of patterns
of expenditure within the construction supply chain, including:
The large number of sub-contractors and suppliers involved in the delivery of a typical
construction project;
the presence of a large number of small value sub-contracts as part of the main
contract and sub-contract supply chains;
Our graphical analysis breaks the sub-contracts further down into construction, service
and product supply contracts described in table 3.2 and also plots details of the main
contractors internal spend. In the case of internal spend this includes direct works as well
as the management and overhead costs more commonly associated with the main
contractor.
41
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
This commercial project supply chain is characterised by a number of large specialist subcontracts. There are five subcontracts with a value in excess of 1 million. The largest
package building services has been managed in-house as a sub-contract and is plotted
in the chart as being part of direct works. Whilst the work is managed by the main
contractor, all of the actual work is sub-contracted to lower tiers in the supply chain. Most
of the high value transactions (e.g. in excess of 100,000) are associated with physical
construction work as opposed to construction-related services. Some of these packages
are quite complex with regards to the number of tier 3 sub-contractors being integrated at
sub-contract level. The high value construction services contracts include design, cranes
and hoists and so on. There are a large number of transactions associated with services
suppliers, with the majority being low value e.g. under 10,000.
The implications for the value agenda of this analysis is the range of services activities
associated with construction projects associated with design, logistics and so on. The
extent of the requirement for services support increases with the extent of transfer of
42
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
design responsibility and the complexity of the site. These services are difficult to
aggregate and involve a high level of coordination.
With respect to the selection of products and the competitiveness of the UK manufacturing
base, this analysis suggests that many of the decisions related to final product sourcing
will be made in the second and third tiers.
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The structures sub-contract on this project is subject to further analysis in section 3.5 the
analysis provides considerable insight as it has the most diverse and complex supply
chain seen in this study.
This analysis is based on a project completed in the South East, using a combination of
established and local suppliers.
This supply chain includes one very large, high value integrated structure and envelope
package. The contract also includes the self-delivery of design and two multi-million
packages. Interestingly, despite the high level of integration, this project features the
highest number of sub-contractors and suppliers 71 in total. Both the superstructure and
services packages are analysed in greater detail in section 3.5.
This supply chain has a relatively small number of services and product suppliers. Most of
the product suppliers are involved in the delivery of furniture and fittings as part of the
hand-over of a fully equipped Academy. However, this supply chain has a comparatively
44
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
large number of sub 100,000 construction packages, some of which we understand were
locally sourced in accordance with agreements with the local authority.
By contrast with the commercial projects, there are elements of this supply chain which are
highly disaggregated representing the potential for increased cost associated with
transaction costs and coordination of on-site activity.
This project is particularly interesting as it contrasts a number of innovative delivery
methods, including the vertical integration of detailed design and building services design
and installation, and the adoption of off-site manufacture techniques. The evidence shows
that even on a project where modern methods of construction are adopted, which should
result in a streamlined supply chain, there remains a high degree of residual
disaggregation in the supply chain. In this instance this is likely to be a reflection of Local
Authority procurement policy, as well as a reflection of the contractors structuring of the
supply chain to gain maximum cost saving leverage on some trades.
The evidence from this project highlights that there is no direct link between measures
taken to increase vertical integration and a simplified supply chain. The data also shows
some evidence of the fragmentation of the supply chain linked to a competitive subcontractor supply chain procurement strategy. The implication for the construction
strategy is that even with a shift to greater use of pre-fabrication; it is likely that a
significant portion of expenditure will continue to be directed through a fragmented supply
chain focused on on-site works. Unlike the Egan Report, which assumed that factorybased construction methods could be introduced widely, the construction strategy should
take into account that current supply chain arrangements are likely to remain widespread
even when advanced procurement approaches are adopted.
45
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Project 4 has a conventionally managed supply chain, with all construction and design
work outsourced to the main contractors supply chain, comprising of consultants, subcontractors and other service providers. Some of these sub-contractors will undertake the
work themselves and represent the end of the supply chain examples include specialist
contractors involved in asbestos removal, tree surgery and so on. Other sub-contractors
will have their own network of sub-contractors and suppliers. This supply chain can be
taken to be representative of the regional delivery model for most national contractors.
There is one very large sub-contract package (building services). The supply chain for
both construction and services is characterised by an extended tail of smaller providers.
Evidence from structured interviews suggests that this project is also associated with some
legitimate but highly competitive procurement practices that have become common as a
result of the downturn. Examples include the re-bidding of work to a panel of subcontractors after a main contract has been won on the basis of quotations received from
individual suppliers.
High levels of competition within lower tiers of the supply chain are also used by main
contractors to meet the increasingly challenging cost targets set by clients. Comments
obtained via the structured interviews also suggested that the incentive for members of
46
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
this complex supply chain to cooperate was being eroded by high levels of competition
and by the re-bidding of work.
Project 5 is the only example of project delivery by a regional contractor that we have been
able to analyse. The project is delivered on a design and build procurement route and
involves some self-delivery via direct labour.
The units in Figure 3.6 have been changed in comparison to previous Figures to reflect the
size of sub-contracts involved. Only one sub-contract is worth in excess of 100,000, with
most (54) being worth less than 10,000. By contrast with other main contractor supply
chains, most suppliers were involved in the delivery of products and materials these
range from the large builders merchants to small specialist suppliers. The information
provided by the main contractor points to a large number of transactions associated with
47
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
the 37 product suppliers in the Tier 2 supply chain nearly 400. This is indicative of a
supply chain operating on an on-demand basis providing and invoicing for building
materials and products in-line with activities on site.
This data provides evidence of a high level of supply chain disaggregation on two
dimensions:
This pattern of high levels of supply chain fragmentation need not be a barrier to cost
reduction, but suppliers clearly do need to be set up to be able to deliver small lots of
materials in a cost effective and timely way. Furthermore, volume discounts based on
total annual spend may accrue to the contractor rather than the ultimate client potentially
limiting the extent to which supply chain improvement initiatives such as category
management can be successfully applied to the construction model.
The results of this analysis, detailing a pattern of a large number of relatively small value
transactions with a large number of suppliers, points to the challenge that many medium
sized regional contractors will face in rationalising complex purchasing processes so as to
drive value from out of their suppliers.
Whilst the procurement approach adopted on project 5 may not be representative of how
all regional contractors operate, the analysis does indicate that at the scale of smaller
projects, the securing of a sustained cost reduction will require effective working across a
highly disaggregated supply chain.
The large number of material supplier contracts associated with the delivery of
construction work exemplified by project 5. Most of this work is delivered by sub48
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
contractors, but where main contractors self-deliver, then material suppliers have a
substantial role as Tier 2 suppliers.
Most of the main contractors that contributed to the study undertook very little construction
work and had supply chains with over 50 participants. The next section of the research,
examining Tier 2 sub-contract supply chains considers whether the same level of
complexity is replicated at lower levels in the supply chain. If the pattern of fragmentation
is repeated at lower levels, then it is conceivable that a one-off, medium sized project with
25 Tier 2 sub-contract suppliers could involve the contributions of hundreds of individual
suppliers.
Project 2
Project 3
Project 4
Commercial Office
Commercial
Office
Academy
Academy
Interiors T2
Services T2
Structure T2
Superstructure
T2
Services T2
Substructure
T2
12
26
106
27
43
16
Average value
74,000
147,000
18,500
126,900
89,400
66,900
Median value
15,000
86,800
920
12,000
29,100
22,000
Maximum value
280,000
485,500
360,800
1,550,000
987,100
272,500
90 Percentile
value
182,100
444,600
28,700
358,800
282,300
214,000
10th Percentile
value
740
6,400
100
180
3,100
3,200
Suppliers
>100,000 (%)
25.0
42.3
5.7
25.9
25.6
25.0
Suppliers
<100,000 (%)
66.7
57.7
94.3
74.1
74.4
75.0
Suppliers
<50,000 (%)
58.3
38.5
93.4
74.1
62.7
68.8
Suppliers
< 10,000 (%)
41.7
15.5
79.3
48.2
37.2
50.0
Number of
Providers
th
26
Due to some issues of interpretation with regards to the extent of the Tier 3 supply chain, it has not been possible to
produce a detailed graphical analysis of Tier 2 sub-contractor supply chains in this report.
49
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
In common with the analysis of Tier 1 contractors, the analysis is focused on the number
of suppliers and the size of the transactions. Care needs to be applied to the results of the
Tier 2 supply chains, as the research team had less visibility of source financial data. For
example, it is likely that the analysis of Tier 3 contractors on projects 1 and 4 understates
the complexity of the supply chain due to the grouping together of the costs of some
materials suppliers.
Notwithstanding issues associated with the comprehensiveness of the results, the analysis
shows that Tier 2 contractors dealing with larger packages also have a complex network of
suppliers at Tier 3 and below. Furthermore, most of the Tier 3 suppliers do not represent
the final layer of the supplier chain. For the services integrators for example, the third tier
are specialist building services contractors who will have their own lower tiers of material
and component suppliers, specialist labour and so on. The research team was not able to
obtain data below Tier 3, so this additional level of complexity is outside of the scope of
this analysis.
One sub-contractor on project two does provide an insight on the structure of the final level
of the supply chain. This Tier 2 contractor uses no sub-contractors and accesses a large
network of material and plant suppliers. This contractor has over 100 suppliers on the
project, mainly associated with small transactions. The evidence from this single subcontract provides an indication of the complexity of the specialist materials supply chain
feeding directly into works on site. A similar pattern is seen in the supply chain structure
for the region contractor discussed above in section 3.4.
The research team was not able to ascertain any specific reasons for a procurement
strategy which results in such high levels of supply chain fragmentation. The teams
hypothesis is that the procurement strategy will be in response to supplier specialisation,
product availability and lowest price procurement.
The analysis in Table 3.4 confirms that Tier 2 construction supply chains are also diverse
and complex. In 4 out of the 6 sub-contracts analysed, there are over 25 sub-contracts or
suppliers, with one package having over 100 separate suppliers. It should however be
noted that there is still a degree of aggregation in the supply chain. The average value of
Tier 3 sub-sub contract is relatively high ranging from 60,000 to 150,000 on five of the
analysed projects.
We were unable to obtain details of a sub-contract from the regional contractor.
The key findings of the Tier 2 analysis can be summarised as follows
The analysis demonstrates that for complex sub-contracts, which according to our
analysis account for 50 to 70% of project value, there will be at least three tiers
within the supply chain, each involved in procurement, logistics and coordination
activities. Given the degree to which final delivery of the work is highly fragmented,
we believe that there is only a limited opportunity to consolidate the supply chain,
removing costs of intermediaries;
This finding also shows that whilst a high proportion of construction work is
aggregated at the Tier 2 contractor level the delivery of the work itself is broken
down into smaller packages of work.
50
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
We have seen very little evidence of the overlapping of contractor supply chains
e.g. sub-contractors working for multiple main contractors. There is plenty of
evidence that supply chains do span across a wide range of contractor clients.
However, in our small sample, which was geographically dispersed, there was very
limited crossover of supply chains.
Despite the level of aggregation of spend around high-value packages, all of the
supply chains examined had an extended tail of smaller value, specialist providers.
The number of suppliers involved ranges from under 10 to over 80.
51
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
As discussed in the introduction (see section 3.1), this supply chain represents all
resources required to construct an in-situ concrete frame. The specialist contractor,
operating at Tier 2 does not use sub-contractors. As a result, this analysis provides a
good insight into the way in which construction work on site is resourced.
In this analysis, costs associated with labour and site management and preliminaries are
all recorded as internal costs.
There are some large Tier 3 suppliers, focused on supply of concrete, reinforcement and
formwork. Some of these supply chain members, concrete producers for example are
larger businesses than the specialist contractors they service. This balance of supply
chain influence suggests that the full benefits of economies of scale will already have been
built into prices, and that specialist contractors are likely to be positioned as price takers
e.g. without sufficient commercial leverage to be able to influence overall price levels other
than their enterprise specific discounts.
Tier 3 services suppliers are primarily focused on the provision of specialist plant. There
are a large number of very small transactions in this segment. The total value of
transactions for 31 of these plant suppliers which represent over half of the supply chain
by number is under 1,000 each. Similarly, whilst there are a number of large material
suppliers, there are also some 20 material suppliers with sub 1,000 transactions, totalling
7,000 in value.
52
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Whilst these Tier 3 suppliers are unlikely to be procured on a project by project basis, the
analysis shows that a high level of disaggregation of the supply chain means that site
operations involve a very high degree of supplier coordination. This finding supports
feedback from the structured interviews that emphasises the role of site management in
the coordination of site operations and logistics.
The analysis of this supply chain also indicates that a high proportion of cost is related to
sub-contracted plant and machinery. Some of this plant and machinery is self-delivered
through subsidiary plant hire businesses. There are a number of reasons for this pattern
of procurement, including taxation strategy, strength of balance sheet and so on.
However, a highly fragmented plant supply industry, as evidenced by this single project
may not be achieving optimum plant utilisation. Plant and equipment services account for
over 30% of the costs of this Tier 2 structures contract, demonstrating that this is a
significant area of expenditure where benefits might be secured through greater utilisation
and efficiency in plant provision.
53
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The analysis provides little visibility of the final supply chain below Tier 3, which could be
as complex as the Tier 3 supply chain analysed for project 2. However, as components
are assembled off site, the research team hypothesises that works will be easier to
programme and that the integration of the inputs of lower tier suppliers has the potential to
be organised in a more effective way. Furthermore, plant utilisation may also be higher as
the result of greater standardisation around products.
The contrast between the structures supply chains for projects 2 and 3 is striking.
Instinctively, the research team would expect the rationalised supply chain for project 3 to
be the more efficient. However, we have no evidence to support this supposition. If, as
54
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
the evidence suggests, a large number of Tier 3 participants are involved in actual
construction and assembly operations, then it is clearly better for this coordination to be
undertaken as part of a factory supply chain based on repeated work processes.
However, the pricing of in-situ construction has been shown to be highly responsive to
supply and demand conditions. Furthermore, the costs of fixed plant and equipment are
spread across a range of industry participants. The evidence gathered in this study cannot
demonstrate whether in-situ or off-site approaches to delivery are the most cost and
resource effective. However, we have shown that there are significant variations in the
structure of the supply chains, which are more contrasted in terms of disaggregation than
might have been expected.
Whether this variation is replicated across other in-situ and offsite contractors cannot be
verified from the rest of the project sample.
Figure 3.9: Project 3 - Building Services Specialist Contractor
The Building Services installations on project 3 are self-delivered using a main contractor
package management model. The analysis shows that whilst some direct buying of
materials and equipment was undertaken by the main contractor, all of the installation
work, including the coordination of the design, is delivered within the supply chain. Some
of the packages, such as the electrical works, are large and are likely to involve extensive
sub-contracting at Tier 3. However, some specialist packages which are usually procured
as Tier 3, including lightning protection, data and the Building Management System (BMS)
have been procured directly by the main contractor.
55
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
There are relatively few low value contracts at the Tier 3 level in this package, only one is
for a sum under 1,000. A further 15 have a value under 10,000. This contrasts with a
total of 85 sub 10,000 transactions associated with the structures supply chain. The low
value items typically involve direct purchase of equipment from suppliers.
Self-delivery of packages such as building services should yield benefits associated with
design and installation coordination together with potential savings associated with
duplicate layers of overhead and profit on these works. Our working assumption is that
contractors will aim to match the overhead and profit margin set by the sub-contract
margin, but will not apply a duplicate margin on building services related to the main
contractor role.
Whether the self-delivery route illustrated in this supply chain eliminates the duplication of
management on-cost remains to be seen, and is likely to be driven by the setting of
challenging target costs by the employer, rather than through conventional competition.
We anticipate that main contractors will need to secure significant volumes of work in
these specialist areas to be able to match the volumes of work undertaken by existing Tier
2 specialist building services integrators. These volume savings will be necessary to be
able to pass supply chain aggregation savings back up to the client.
Figure 3.10: Project 4 - Structure Sub-contract
Data for this package suggests a lower level of supply chain disaggregation than the
structures package on the commercial project. Specialist sub-contractors related to
specialist post-tension technology are included in the supply chain as well as material
and plant suppliers. Not all packages are identified in the analysis. A sum of 85,000 was
identified as miscellaneous materials and services, which could involve a large number of
smaller value transactions.
56
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Main contractors (Tier 1) may access a project supply chain of over 40 subcontractors and suppliers to deliver a typical 10 million plus contract;
50 to 75% of the value of the construction work in our sample was accounted for by
4 or 5 large, complex Tier 2 sub-contracts;
Complex Tier 2 sub-contracts are also highly disaggregated, typically featuring over
30 suppliers at Tier 3.
The current structure facilitates cost reduction through downward competitive pressure,
which may not secure best value delivery through the coordination of activities on site.
A key insight from the analysis relates to the supply chains directly involved in the delivery
of construction work, as opposed to the coordination of sub-contracts. The study featured
two supply chains involved in actual construction. These are from projects 2 and 5, and
are detailed in figures 3.7 and 3.6 respectively. They were the most complex and also
involved the largest number of low value contracts with a substantial number having a
value under 1,000. In both cases, the bulk of the value of construction work was focused
on large sub-contracts, so clearly where the aggregation of work is appropriate, then the
opportunity is taken. However, the presence of a large tail of small value suppliers, points
to potential issues associated with opportunity costs to the industry associated with the
coordination of a multitude of independently managed site operations and services.
The analysis demonstrates that there are a large number of individual participants on
construction projects, all of which will be pursuing their own growth and profit strategies.
Some of these sub-contractors are highly dependent on a small number of clients for most
of their workload. Other suppliers, particularly in bulk materials markets such as in-situ
concrete, will be larger than their clients, and could have more market power with respect
to the setting of prices.
Another group of Tier 2 and 3 suppliers deliver relatively low value parcels of niche work
on projects. There are a large number of these suppliers. However, they are insignificant
57
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
with respect to the proportion of the overall value of construction work delivered. These
businesses are likely to rely on a very large client base on which to support a specialist
business. In these instances, individual contractors will have less incentive to align with
the needs of specific projects.
One challenge will be to align these different project participants to industry wide needs to
cut costs and reduce project durations. The evidence from this project is that a
considerable effort will be required to influence the actions of a wide number of
participants.
Given the current depressed state of the market and high levels of competition currently
observed in the supply chain, the immediate response to a recovery in workload is likely to
be to strengthen margins and balance sheets to provide for expansion and investment.
These findings set the foundations for the structured interviews, which focus in more detail
on factors which improve performance in the supply chain.
58
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Addition for target profit actual profit may vary as a result of the accuracy of
estimates and the effectiveness of project delivery;
Addition for overhead contribution the proportion of business operating costs that
are recovered indirectly from projects as a central charge rather than directly as a
project cost;
The setting of on-cost additions is subject to market conditions. On-costs tend to be priced
more generously in rising markets. The context to the analysis presented in this report is
that all of the projects included in the sample have been procured during the downturn.
Most profit, overhead and risk allowances will have been subject to downward adjustment
since 2008.
It is widely recognised that the construction industry is not currently generating sufficient
return to cover costs and deliver a return. Measures of prices published by EC Harris 27
and others point to construction price reductions in excess of 20% since 2008.
Furthermore, historic records show that construction prices rise after a downturn and in the
long run increase at a premium to RPI. Research findings support this assessment of the
current position of the industry. Taking into account that some projects were procured in
2008/9 and then put on hold, and other projects were procured more recently, we found
projects where suppliers margins were described as being under considerable pressure
and others where returns were judged to be average.
The implication for the Industrial Strategy is that there is likely to be an upward pressure
on prices linked to on-costs when activity levels start to rise.
27
The EC Harris tender price index reports that prices have fallen by 20% since peaking in first quarter 2008.
59
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The analysis shows that main contractor and integrator margins are at the lower end of the
scale. This partially reflects high levels of competition between general contractors, who
are less able to differentiate by product or service quality than specialist contractors. Low
initial margins amongst main contractors and integrators also however reflect an
expectation that margins can be increased either through the post-tender rebidding of
sub-contracts or through provisions in contracts for recovery of costs associated with
change. One implication of the expectations low margins amongst main contractors and
integrators is that it builds-in the need for high competition in the selection of lower supply
chain tiers. Not all specialist contractor work can compete on the basis of product
differentiation, and three Tier 2 contractors stated that they were working to 0% margins in
the current market.
60
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The specialist contractors included in this analysis are all Tier 2 suppliers. Overheads for
this group range from 1% to 30%, with an average of 11%. The high level of overhead
shown in figure 4.1 for a small number of contractors is associated with businesses with
high fixed costs related to design and fabrication on relatively small value work e.g.
Architectural metalwork, AV systems etc.
We have compared package value and percentage additions for profit and overhead to
assess the potential impact of high levels of on cost. Figure 4.2 plots on-cost additions
against package value, together with linear trend lines, indicating an observed association
between high on-cost percentages and relatively small package value in the current
market.
Figure 4.2: Comparison on On-cost addition and package value
The clustering of
relatively high
allowances for margin
and overhead on the left
hand side of the chart
shows that high-on-costs
are associated with
smaller value subcontracts
This analysis demonstrates that the proportion of high margin work found on construction
projects is relatively low. However, it also should be noted that that in the current market,
levels of overhead have been depressed, and as a result, cost additions through margin
recovery is a likely long-term inflation scenario. 80% of respondents described the on-cost
levels recorded in the survey as average, implying that on-cost levels could increase from
current levels.
61
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Integrator (Tier 2) 6 to 7%
It should be noted that out of a sample of 31 respondents, four participants, most of whom
are specialist contractors recorded pricing profit margins at 0%.
Based on a blend of main contractor costs, work delivered by integrator sub-contractors
and work delivered by specialists, the total proportion of the costs of a construction project
that is attributable to margin and overhead is likely to range from 17 to 20% on average 28 .
The share of on-cost attributable to the integrator level, where it could be argued that there
is some duplication of margin and overhead is around 2%.
Our analysis shoes that most contractors who have been interviewed continue to secure
some margin and overhead, albeit at sub-optimal levels. On-costs secured outside of
London and the South East are significantly lower, albeit our evidence base has in part
been derived from frameworks which have protected reasonable margins.
The adoption of integrator roles by main contractors appears so far to have transferred oncosts to the main contractor, rather than to have reduced them. A reduction in overall oncosts may follow through the application of competitive pressure. In-house integrators are
still winning work in competition with independent specialists albeit the number of
specialists is diminishing.
The evidence of high overheads in some specialist sub-contracts may justify further delayering of industry structure albeit there is also evidence that levels of management
resource are being reduced to keep bids competitive whilst maintain profit and
contribution. The analysis shows that high overhead costs are related mainly to smaller
specialist subcontractors.
28
This assessment is based on a blend of work whereby the main contractor recovers on-costs on 100% of net cost,
integrators recover on-cost on 35% of net costs, and sub-contractors and suppliers recover on-cost on 90% of net cost.
Suppliers costs would be included in the main contractors preliminaries addition, as well as the works of subcontractors.
62
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
63
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Detailed results related to each set of hypotheses are described in the following sections,
dealing with each set of performance drivers in turn.
The analysis suggests that financial arrangements, the method of being selected for a
project, design management and site management combine to have the greatest impact
on project outcomes. By contrast, methods of selecting suppliers, approaches to price
determination and the integration of the supply chain were picked out less often as drivers
of performance.
These high level findings lead us to conclude that there is a close relationship between the
disaggregated structure of the supply chain and the need for high quality management
during the procurement and construction phases of a project. This places a premium on
discretionary behaviours and inter-personnel skills.
The payment performance of clients and main contractors affects the operating
performance of sub-contractors;
Payment delays reduce contractors liquidity and in turn industry capacity and
output;
Uncertainty and delay in agreeing payments for changes increases risk to the
supply chain;
The practice of retention is reluctantly accepted but seen as a burden on cash flow
and performance;
Prompt payment performance builds trust and encourages flexibility in the supply
chain;
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Rated as
negative
Count
(nr)
Impact
(nr)
Count
(nr)
Impact
(nr)
30
Certainty of payment
32
12
-1
Promptness of payment
35
13
Overview
The analysis provides clear insight that payment issues are very important to supply chain
members, and that positive behaviours drive better project outcomes. Almost all
respondents mentioned payment related issues. There was a broad consensus that the
timing and certainty of payment was a growing problem which affects performance. The
results suggest that the perceived fairness of financial arrangements was seen by
respondents to have less influence on performance than certainty and promptness of
payment itself.
One insight gained from the interviews is the knock-on effect of payment performance on
individual projects on the ability of a business to finance bids or expansion. Payment is a
good example of an aspect of business behaviour that has a direct impact on the
competitiveness of the industry, including the ability of sub-contractors to compete, win
and expand.
Comments from interviewees emphasised that practice on our sample projects was
significantly better than their experience of typical behaviours on projects. The data
analysis shows that the sample projects were highly rated for fair and reasonable payment
terms, and certainty and promptness of payment. Our understanding of certainty of
payment is that it concerns valuation practice such as being paid for variations as well
as the risk of employer failure. Certainty of payment was identified as an area where poor
performance did trigger negative reactions from the supply chain.
In discussing payment practice, it is important to emphasise that we found a number of
examples of flexible practice by main contractors, recognising the specific circumstances
and cash flow positions of different sub-contractors. Examples included shorter payment
periods for contractors with a direct labour force, higher frequency payments for SMEs
66
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
67
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Certainty of payment
Certainty of payment concerns the valuation of variations as well as the financial stability
and credit risk of the immediate client.
Many of the concerns raised in interviews focused on the valuation of variations by main
contractors. A common complaint was that the valuation of changes was left unresolved
until the end of the project, when a subcontractor might be in a weaker bargaining position.
Delay in the resolution of claims is a common practice across the industry involving clients,
contractors and their consultant advisors. Contract provisions exist to encourage the
agreement of costs in advance of the instruction of changes, and the findings of our survey
underline the benefits gained from the certainty of agreed costs. Key issues identified by
main contractors and sub-contractors involving payment certainty included:
Scope of variations. Discussions concerning the scope of work and the extent of
design responsibility associated with design and build procurement is a source of
risk. This is an aspect of the cost of change that we discuss elsewhere in the
study
The timing of the agreement of the valuation of change. The level of risk can
increase as a project approaches completion, particularly if there has been a costoverrun.
68
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Prompt payment
Prompt payment was described in interviews as an enabler of goodwill and cooperation.
Prompt payment is a hygiene factor and as a result, delayed payment inhibits good
performance more than prompt payment incentivises improved performance.
Prompt payment is an important enabler of project performance but may not result in
reduced waste or cost. However, prompt payment was seen by many subcontractors as a
main contractor differentiator which influences the pricing of projects. Extended payment
terms also reduce industry capacity. Many subcontractors interviewed said that they were
unwilling or unable to work under extended payment terms because of the strains on cash
flow and increased risk.
Little direct reference was made in interview to Project Bank Accounts (PBA), despite
efforts to introduce them into the public sector. One specialist contractor acknowledged
their role in providing greater certainty with respect to payment and cash-flow. Main
contractors have observed that due to the effect on business models that rely on proactive
management of cash, their prices may increase as the result of the widespread
introduction of PBAs.
Certainty and promptness of payment is particularly important for regional contractors or
sub-contractors that support a large direct labour force. There is currently a high level of
awareness of late payment and the extension of payment terms perhaps as a result of
high profile actions by some main contractors.
Specific comments and insight on speed of payment included the following:
Sub-contractor: the majority of money is going to pay wages weekly and so we must be
paid on time. We have horrendous experiences on some contracts. This increases risk
and wastes a huge amount of time chasing.
Sub-contractor: Unable to fund many jobs with long payment periods so had to decline
opportunities.
Sub-contractor: Delayed payment or longer payment periods influenced performance, with
one firm stating that it limited the labour resources allocated to a project to control cash
flow.
Sub-contractor: Extended payment terms may be funded through the contract price,
increasing the cost to the client. One sub contractor stated that it had increased prices by
3% to 4% in response to the extension of payment terms at the beginning of the recession
in 2008/9.
Building Services specialist contractor: Careful management of subcontractors is required
to mitigate the effects of wider cash-flow problems. The impacts on sub-contractor
performance, including fluctuating labour levels, which create productivity problems on
site. Problems associated with late payment may also cause delays in deliveries. The
cause of the problem could be a completely different project.
69
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Where subcontractors are selected in competition, they are wary of assisting main
contractors with bids;
The current application of single stage tendering to design and build projects limits
supply chain involvement in solution development and may not deliver best value,
even if it offers the lowest cost of entry;
Personal relationships and familiarity within teams still plays a strong role in supplier
selection;
In the current highly competitive market, price often trumps performance in winning
bids;
The re-bidding of packages by main contractors to drive down prices is having the
effect of reducing lead-in times for sub-contractors once the work is awarded;
Very high levels of competition in supplier selection are having a negative effect on
established supply chain relationships, which are at risk of breaking down.
70
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Rated as
negative
Count
(nr)
Impact
(nr)
Count
(nr)
Impact
(nr)
Regularly selected
27
14
20
10
Early contractor
involvement
25
19
-2
Highly competitive
15
Rated as
negative
Count
(nr)
18
Impact
(nr)
16
Count
(nr)
0
Impact
(nr)
0
-1
Early contractor
involvement
Highly competitive
Regularly selected
Overview
The analysis of survey responses shows that both established relationships and early
involvement in projects are enablers of high project performance. These practices also
tend to be associated with reduced levels of competition. We have no evidence
comparing the contribution to value generation of competitive and collaborative
approaches to team selection, but there are clearly trade-offs between the two, such as
the disincentive for a sub-contractor to support a main contractor in preparing a bid
submission, when it is known that all work packages will be retendered once the project is
secured. Interestingly, interviewees who saw a benefit in being selected on the basis of
performance also recognised the role of performance in the selection of their own supply
chain.
71
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
During discussions, most interviews made it plain that competition was fierce and that cost
discipline in non-competitive situations was also high. The consensus was that clients
expect prices to be very competitive, irrespective of the method of selection.
Evaluated purely on the basis of a quantitative analysis, early contractor involvement is
perceived to be the strongest driver for improved performance. Furthermore, late
selection was reported to have hampered the performance of two respondents.
Findings on regular selection within the supply chain indicate that this is a positive
performance driver also contributing to positive site management performance. Whilst
the project sample may not be representative, interviews revealed considerable effort by
team members to maintain stable relationships.
The interviews provided much evidence that methods of contractor selection were strained
by current commercial pressures resulting from the downturn. Contractors at all levels of
the supply chain described the erosion of perceived progress made after Latham and
Egan, caused primarily by the cost reduction imperative that has dominated bidding
behaviour since the beginning of the construction downturn in 2008. From sub-contractors,
there was fairly widespread cynicism about how some main contractors are operating their
supply chains and framework agreements. Given the extent to which price reductions have
been pushed down the construction supply chain in the five years of the downturn, this
finding is not surprising.
72
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Sub-contractor: On two projects most subcontractors felt that they were part of a select
supply chain and viewed the main contractors as preferred clients.
Main contractors and sub-contractors. Ten respondents said that their selection was down
to their performance rather than price, adding that this was beneficial to overall project
performance.
Evidence of changing selection practice
Most interviews confirmed that price was the driving force behind selection in the current
market. Many interviewees saw a shift in the balance between price and performance as
being disruptive - creating a downward spiral in prices.
A common observation in interviews was that the benefits for main contractors of having a
stable set of suppliers were being abused. Examples of this included:
There is clearly a tension here between the discipline of an open and contested market
and the benefits of established, effective teams. We found plenty of evidence of subeconomic bidding which is likely to be at the expense of the health of the industry, project
outcomes and team continuity. Main contractors in the survey were aware of the pitfalls
but were also subject to commercial discipline.
We also found instances where public sector policies to promote local SME employment
also disrupted established supply chains. For example, a contract may require a minimum
level of local job creation or a commitment to use local contractors to deliver the work,
requiring a contractor to employ resources from outside of their settled supply chain.
These arrangements could also carry some financial risk for the supplier, particularly as
the main contractor will typically have a powerful market position. This can be dangerous
as small companies will often buy the work, especially on the first scheme for a big new
client.
Specific comments and insight on increased levels of competition included the following:
Specialist contractor: "Businesses are not being able to make enough in the market to
surviveEveryone I talk to wonders how long it can go on and how long can we survive".
Sub-contractor: Contractors are picking up jobs at low margins; bidders are fighting
against the budget not competition.
73
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
74
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Main contractors observed that widespread use of single-stage tenders, often for designbuild projects minimised the opportunity for negotiated deals with suppliers.
Incomplete design, design change and late variations lead to significant waste;
Reduced levels of professional fees have reduced available design resource, which
may in turn have affected the quality and reliability of initial designs. Some aspects
of design particularly building services continue to suffer from content and
coordination issues;
Wider use of highly competitive selection is reducing the incentive for sub
contractors to assist main contractors in solution development;
Evidence that the barriers to the implementation of change are not high enough to
discourage high levels of change orders.
75
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Rated as negative
Count
(nr)
Impact
(nr)
Count
(nr)
Impact
(nr)
Formal design
management
21
-3
S/C involved in DD
solutions
23
17
-2
Incentive to contribute
10
-1
Early contractor
involvement
22
13
-2
11
14
-12
-6
Overview
Overall, results from the structured interviews provide an indication of the strength of
supply chain opinion with regards to the contribution of design management to overall
project performance.
The consensus of interviewees was that the sample projects benefitted from above par
design management performance. Characteristics of good practice included formal design
management practice and significant subcontractor involvement in detailed design. Even
on well-run projects variations remain an issue, and we were given many examples of
unnecessary costs or missed savings that resulted from changes to incomplete designs.
A striking aspect of discussions with the supply chain concerned the completeness of the
design and the extent to which changes (VOs) might be needed. Given that these projects
were procured on a design and build basis this suggests that whilst commercial risks
associated with design might have been transferred, the risks themselves might not have
been reduced or mitigated potentially a source of waste.
Procurement options which encourage greater investment in design development repeat
projects or modular construction for example may have a role in best value solutions.
As already discussed in connection with supplier selection, it is widely thought that early
contractor involvement in design can contribute to improved project performance. Early
involvement was common on the projects in our sample. However, we found that the use
76
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
of incentives to encourage engagement appears to be patchy and there was evidence that
the potential contribution of some subcontractors has been overlooked.
The role of the ultimate client did not emerge as a significant issue for the supply chain,
albeit it was recognised that intelligent and effective clients have a big influence on overall
project performance.
We were given an example of a project where the cost of the structure could have been
reduced by 25% through better quality information. Furthermore, we were also told that
without the active mitigation of the effect of change by sub-contractors, costs would be
even higher.
77
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Effectiveness of the procurement of design and build projects. Issues included the
ability of main contractors to fully consider potential value engineering options in a
single-stage tender competition. Interviewees also mentioned conflict of loyalty
issues associated with the novation of the design team, which in turn translate into
tensions within the design and build team. These can also be interpreted as the
tension between the guardianship of design intent and the delivery of cost effective
construction.
Another issue associated with design and build was the compression of the overall
design and construction programme. Some contractors noted that delays in main
contractor appointment resulted in further reductions to overall project duration,
which reduces the time available for design integration and value engineering Enduser clients are late in getting the main contractor on board and don't change the
timescale for the start date. That knocks on throughout the project. We are seeing
that more and more.
Split design responsibility. One M&E subcontractor stated that it is common to end
up doing easily double the design/engineering work than was originally anticipated
because of the exchange of information with consultants who dont have the time or
resource to respond effectively. On building services, detailed design work is
typically completed by sub- contractors. In this instance the sub-contractor would
prefer to take total rather than partial design responsibility;
78
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
ordination issues. You can't fit services in. They don't fit and you are reworking
walls etcetera - that adds cost.
Some specialists also believed that they could make a greater contribution to design
development and value engineering. A good example was logistics which are not
often considered at the design stage: There are many opportunities to reduce costs
that are missed because main contractors are not taking into account the logistics
during construction.
The effect of commercial practice on early contractor engagement
Early contractor engagement and sub-contractor involvement in design development were
both identified by many respondents as drivers of enhanced performance. However,
interviews identified the extent to which commercial practices such as single stage
tendering and post-tender rebidding reduce opportunities for and the effectiveness of subcontractor engagement.
Sub-contractors have often provided assistance on bids on the expectation that they will
be awarded the work if the main contractor is successful. A number of subcontractors
complained that they had invested in supporting tenders only to see the work rebid and
won by other firms at lower prices. This practice is not sustainable and many specialists
and subcontractors are very cautious about engaging in ECI without a firm commitment.
The most likely outcome is a sub-optimal design solution.
The rebidding of work packages post-contract award to further reduce prices was a
common explanation for reduced lead-in times.
Effective management of client change
The survey also revealed the contribution of clients to the incidence of change. Many
complaints were made over the timing and management of the clients decision making
and their lack of understanding with respect to the impact of change.
Many subcontractors stated that they preferred to avoid variations even if full costs are
recovered due to disruptions to the programme and wider knock-on effects. One concrete
frame contractor noted. Even if we make money out of change, it hits morale and affects
the programme. The only way to make money is to do work efficiently."
Another example of the indirect impact of change is the potential for the wider disruption to
work sequencing. One flooring contractor noted: Getting the floors in at the right time in
the contract cycle is critical.....We need a clear run, otherwise we are scheduling (the)
workforce inefficiently. Labour is about 20% of contract value, (low utilisation) could
increase our labour cost by 50%. This example shows how changes to the programme
caused by variations affecting one trade can have a substantial and unintended impact on
others.
Survey participants clearly recognised the impact on performance of late change, including
waste and disruption to progress on site. However, there was a striking level of
complacency amongst participants with respect to accepting change as part of the
79
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
process, even though many contractors claimed to make more money from straightforward
projects without extensive change or claims. These findings were all the more striking
given that projects in the sample were procured using design and build which has some
advantages with respect to increasing the main contractors control over design change.
There is a high dependence on the ability of the project manager drive high
performance;
A good project manager and good team spirit engender higher levels of
discretionary effort;
Personalities and personal behaviour have a high impact because they influence
the commitment of suppliers on current projects and their interest and pricing
behaviour on future projects;
Effective application of soft skills is viewed as being critical in driving high levels of
project performance;
Extended lead-in times on projects provide more time to build good project team
relationships.
80
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Rated as
negative
Count
(nr)
31
Impact
(nr)
27
Count
(nr)
1
Impact
(nr)
0
21
-1
21
12
11
-7
17
-1
26
21
Good benchmarking
Good communication
Overview
The most striking result from structured interviews was the level of unanimity with regards
to the positive impact of good on-site communication on project performance.
Respondents emphasised that positive behaviours on site were critical to good project
performance. Interviewees placed a very high level of importance on the quality of the
project manager and site manager.
Interviewees told us that the key to improving project performance was good team
relationships and communication. This emphasises the widely held view that construction
is a people business a point of view that sometimes gets missed in industry strategies
and improvement initiatives.
With respect to both good team relationships and quality of communication, our case study
projects were rated very highly.
With respect to hard site management process as opposed to soft skills such as effective
communication, programming was ranked highly, particularly as a poor scheduling can
have a direct impact on progress and resource utilisation.
Other aspects of best practice management, including effective site logistics and
benchmarking were rated fairly lowly as performance improvers. This suggests that
management practice is at a low level of maturity and that there is likely to be plenty of
potential for further improvement. 15 years after the publication of the Egan Report, these
areas of best practice continue to have a relatively low profile in the industry, suggesting a
slow rate of adoption of innovation.
81
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
82
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
83
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Eagerness to work with a client and overall levels of demand are the strongest
determinants of the overall level of pricing relative to input costs;
Rated as
negative
Priced realistically
Count
(nr)
21
Impact
(nr)
11
Count
(nr)
12
Impact
(nr)
-8
Highly incentivised
15
-1
High risk
14
Negotiated
13
84
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Overview
Findings on price determination need to be interpreted carefully relative to current market
conditions. The projects featured in the sample will have been procured in 2010-2011 or
earlier, which may mean that price levels were higher than in the current market, or that
there were opportunities to secure savings through sub sub-contractors and suppliers.
The majority of firms interviewed for the study believed they priced realistically and that
this was an important dimension of project performance. This finding is possibly surprising
given the duration of the recession but it should be noted that firms were commenting on
price levels in recently completed projects, rather than projects that have been secured at
the absolute depth of the recession. Where firms said they had not price realistically, then
a higher proportion, eight out of 12, believed this was detrimental to overall performance.
Notwithstanding realistic pricing, overall pricing of projects continues to be very
competitive. Interviewees told us that in many cases work has being undertaken at a loss.
These are not isolated instances. Sub-economic bidding and has occurred over an
extended period of time, with a corresponding effect on the ability of some firms to trade.
In the survey, we examined in more detail the process and drivers behind pricing
decisions. This examination is closely linked to the study objective related to cost
reduction within the supply chain. A number of interviewees said either directly or by
implication that their pricing decisions were in large part a judgement call, related in
particular to levels of available work and the attraction of the client as a source of future
work. This has implications for future price levels as previous patterns of inflation could
occur as layers of suppliers and subcontractors take their cues from the market.
The questionnaire data shows that the level of workload is a major factor influencing
pricing. Discussions with interviewees indicated that market conditions were much tougher
in the regions than in London. Albeit on a small sample, this finding was supported by the
questionnaire results which showed contracting firms working in the regions weighted the
level of workload as a more important determinant of price.
The questionnaire data also reveals a high level of eagerness to work with certain clients.
Interviewees frequently mentioned that they had priced very keenly or accepted less
favourable terms to win work and build a relationship with a client, be they the ultimate
client or a main contractor.
The questionnaire data shows that risk is considered to have a strong influence over
contractors determination of the final price. Perception of relative risk could result in
projects being priced more or less competitively. We found plenty of evidence through
commentary in the interviews that some firms are not pricing for risk in their bids given
current, highly competitive market conditions.
Factors influencing decision making on the level of pricing are detailed in table 5.7 below.
85
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Medium
Weak
Weighted
score
22
173
Level of workload
17
14
159
12
16
133
10
13
82
23
26
27
18
availability of work.
The influence of the client in decisions related to pricing levels is an important insight, as it
aligns with wider client thinking around supply chain management and buying power
through category management. The implication is that client focus on a relatively small
number of supply chains will influence pricing through a combination of dependency for
work, expectations around repeat work and a greater understanding of the clients
business drivers. An interesting example of this effect came from a main contractor
discussing open book pricing with a knowledgeable client. The contractor explained that if
the client and the supply chain both understand how much a facility should cost, then
86
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
suppliers should be able to focus delivering solutions which both meet the performance
target and deliver a reasonable margin.
The availability of work is an obvious factor. With work in short supply, clients are clearly
benefitting from very competitive pricing. However, in most instances, affordability levels
have also been recalibrated, meaning that low costs are an essential contributor to project
viability. The importance of the client relationship will be in helping to mitigate upward
price pressure transfer once markets begin to recover. Consolidation of workload will be
important in this regard, as there must be sufficient continuous workload to sustain an
alignment of commercial interest between contractor and client.
Finally, the pricing of risk represents a risk to both sides of the pricing equation. Current
market conditions permit the transfer of high levels of risk at a low cost. As workload
increases, this balance is likely to shift, with suppliers pricing risk on a more commercial
basis as well as seeking a change in the balance of allocation. Clients and main
contractors will need to manage this transition effectively to minimise the effect of risk
premium pricing on overall project costs
87
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
team when they priced for work. The range of these discounts or additions varied widely,
but was substantial. As discussed previously, premiums were sometimes applied to
reduce the likelihood of winning the work.
Current price levels and their impact on business strategy
Most of the firms interviewed rated both their margins and overheads for the case study
projects as average compared to their own business norms at the time of bidding, with a
quarter rating margins as lower than average. A small number also rated their overheads
as being lower than average.
To some degree, the analysis of data from the case study projects conflicts with the
impression given in structured interviews, which reflected wider market conditions. The
most commonly used phrase used in interview to describe pricing levels was keen.
Firms were prepared to state that on projects they were discounting their margin to win
work to cover overhead costs. In other cases, there was evidence of work being bought at
a loss which potentially necessitates the rebidding of supply contracts and so on.
The implications of highly competitive pricing behaviour for the ability of the industry to
deliver truly cost effective construction are potentially significant and include the following:
Risk is not being fully priced in tender submissions. This means that current cost
levels are not commercially sustainable, and the supply chain are potentially
exposed to significant financial risks, on which no return is being secured;
Rebidding on sub-economic projects adds cost to the supply chain, reduces the
early contractor involvement window and erodes cooperation in future bids;
Contractors are not making sufficient returns to re-invest in the business. We found
evidence of weakening balance sheets, falling investment levels and depleted
levels of cash in businesses.
Examples of the impact of current price levels on business performance and stability
included the following:
Specialist contractor with manufacturing capability: Capital investment is not being
supported by price. Looking back on it I wished I had shut the business down four years
ago and gone on holiday.. that is how much it has cost us to stay in business."
Main contractor support to sub-contractors with cash-flow issues: Smaller contractors with
cash-flow problems tend to reduce site resources. We were given examples where lower
tier subcontractors were being supported by main contractors with favourable payment
terms to ensure they maintained their workflow.
Weakening balance sheets. Most of the businesses interviewed were self-financing and
fund losses from reserves. Whilst company balance sheets had strengthened prior to
2008, they were now being weakened as a result of a drawdown on resources.
88
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Little spontaneous mention of BIM and no adoption on the case study projects;
Evidence of some vertical integration, with main contractors taking on the building
services integrator role;
Rated as
negative
Impact
(nr)
Count
(nr)
Impact
(nr)
14
-1
Highly standardised
14
-1
BIM
13
12
89
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Overview
The supply chains examined are typical for the UK with a high degree of subcontracting.
Three of the projects featured elements of direct delivery of construction work including
ground works.
The results of the analysis show a very low level of awareness of formal integration such
as standardised project processes. Some respondents did refer to the benefits of working
regularly with other teams, albeit more reported the benefit of being regularly selected by
their clients. Nine out of the 12 interviewees who mentioned regular work with teams said
that it was beneficial to project performance.
On three out of five projects we saw evidence of greater vertical integration, with the main
contractor taking responsibility for the management of building services, replacing the
specialist M&E contractor/integrator. This is an accelerating trend.
Interview findings suggest that few participants see supply chain integration or
fragmentation of the supply chains as an influencer on performance. Interestingly, given
the current profile of BIM (Building Information Modelling), there was little spontaneous
mention of BIM on projects. In some cases interviewees mentioned the absence of BIM
rather than its presence, albeit within a context where BIM is in use.
The whole industry should take note that cynicism surrounding the application of supply
chain management and integration in construction may be growing. On more than one
occasion we were told that the Egan and Latham principles no longer applied to the
industry.
90
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
process or by requesting key personnel from subcontractors which have successfully bid
for work.
This finding has important implications for the strategic procurement of repeat work on a
serial basis demonstrating that there are additional benefits to be gained from repeat
work other than buying power.
The benefits of stable project teams supported by repeat workload are well rehearsed and
were mentioned often by the interviewees. These include common processes and jargon,
lessons learned, shorter learning curves; faster team building, greater levels of trust and
cooperation, effective collective problem solving and a reduction in the risk of conflict.
Evidence of vertical integration
The main instances of vertical integration found in connection with sample projects
involved management of building services, together with the use of direct labour on high
risk areas like ground-works where there are potential benefits to be gained from a higher
level of control and risk management.
The motivation to integrate building services is complex. Firstly, there is the opportunity to
reduce cost and increase access to margin. Secondly, the ability to risk manage delivery
of a highly complex area of work is increased. Other benefits of the integration include
earlier engagement in the design and coordination process. The vertical integration of
building services is an accelerating trend, and some M&E specialist integrators contractors
have withdrawn from the UK market during 2013.
The effectiveness and permanence of this realignment of the supply chain will continue to
be tested. In particular, the risk reward balance will need to favour the main contractor for
the vertically integrated model to become widely established. Furthermore, some clients
may still want to appoint specialists contractors to this role.
One specialist building services contractor who was unsurprisingly sceptical focused on
the business challenges involved, questioning whether main contractors had
overestimated potential gains from the vertical integration, and whether a complete
assessment had been made of the skills and resources required, and risks associated with
the delivery of a portfolio of projects of varying complexity.
The other aspect of vertical integration found in the survey related to direct employment of
construction operatives, which we saw on three projects. On the regional project studied,
the main contractor maintains a high level of direct employment and trains its own
apprentices. It also has a vertically integrated building services delivery capability.
Despite the extensive in-house capability, the contractor maintains and utilises a large
database of suppliers.
This firms managing director was committed to the use of direct labour because it led to
better quality of work and better communications on site. This contractor secured a high
volume of work via public sector frameworks and their approach to employment aligned
with the values of the public sector client. The MD recognised the value proposition
91
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
despite the higher cost of the direct employment strategy, potentially limiting the firms
flexibility when bidding in competitive situations.
Other aspects of supply chain integration
Findings from the structured interviews reinforce our view that the construction industry
focuses on day to day issues of project management and coordination which are
effectively transacted through personal relationships and the effective operation of settled
teams.
The low perceived value of other aspects of supply chain management and integration is
an important issue as it provides a clear indication of the erosion of initiatives designed to
drive efficiency and life time value for the client.
Key findings which came out of these discussions included:
A widespread perception that the supply chain has been abused in response to
tough market conditions examples of behaviour include rebidding work, extended
payment and so on;
Both implicitly and explicitly many interviewees stated that the approaches to project
delivery developed in response to the Latham and Egan reports were in retreat. Some in
effect said, to paraphrase, Egan is dead. Cynicism over the notion of supply chain
integration was very evident during interviews with sub-contractors.
One finding, which surprised the team, was the near absence of any spontaneous mention
of BIM by either contractors or sub-contractors. Given that the projects in the study were
unlikely to use BIM will inevitably have lowered the profile of new ways of working in the
minds of the interviewees. BIM was only referenced twice when interviewees were asked
directly about potential improvers of project performance. No other form of information
technology was mentioned during interviews. Our conclusion, at least at this stage, must
be that BIM is not at the front of mind of many supply chain participants.
92
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
As well as having a direct effect on project outcomes, these factors interact in a complex
way to either inhibit or promote project performance, depending in part on circumstance
and conditions.
Given the complexity of the supply chains that we have analysed as part of the project, the
implication for Industrial Strategy is that levers for project performance will be subject to a
range of contradictory, cross-cutting influences.
This section of the report seeks to identify and consider the impact of cross-cutting themes
that have emerged from the survey. We consider how various factors and circumstances
interact to influence project performance. The analysis has been prepared by drawing on
the results of the structured interviews, by reflecting on the range of opinion encountered
and by applying the aggregation of results presented in the survey grid.
93
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Management of change;
Waste.
94
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Interviews emphasised the degree of influence a project manager might have on team
selection, and the extent of the project managers role in coordinating and motivating the
project supply chain sometimes based on ad hoc, quid pro quo arrangements. This
pattern of behaviour occurred on projects managed by contractors with very mature and
formalised management systems as well as less organised businesses.
Interviewees said the quality of individual project managers varied greatly. A range of
capability within the pool of managers is essential to provides scope to match managers to
projects. However, interviewees saw a gulf between good project managers and bad
ones and their performance had an effect on project performance. Perceived failings were
mainly seen in soft skills including negotiation and man-management. Main contractors
also acknowledged the need for performance improvement especially with soft skills. As
evidence of this need, some contractors are introducing new training initiatives for their
project managers.
Many of the factors that create behaviour problems on site have been accentuated by the
current tough market conditions. There was a view that many recent gains made in
collaborative behaviour were being eroded as a result of highly competitive bidding and
tightly resourced projects placing a further premium on management capability.
Feedback from the supply chain suggests that investment in the improvement of site
management skills will drive better performance. The opportunity for improvement may
not be obvious to all construction businesses and we recommend that further work is
undertaken in understanding the potential for up-skilling and the best means of delivery of
these skills development programmes.
Our research provided greater clarity with respect to the coordinating role of the PM
particularly on projects with complex diverse supply chains. The PM role could be a single
point of failure on a project, and from a policy point of view, awareness raising, skills
development, and the attraction of talent will help mitigate this risk.
95
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Our structured interviews clearly indicate that the ability to introduce change is the industry
norm, is reluctantly accepted, but was seen by most interviewees as a source of waste, a
cause of uncertainty and a catalyst for greater friction between trades. Change disrupts
progress, introduces cost and reduces industry productivity.
Given that changes may have a knock-on effect beyond the contractor who is doing the
work, the full cost of change may be higher than the price paid by the initiator of the
change. Any premium related to reduced efficiency will be paid by all clients of
construction.
Insight from the study
A commonly held view is that construction firms thrive on change. Designers hone their
proposals, mistakes get corrected, and constructors secure higher profits on variations.
The study found little evidence of this, and many firms said the cost of implementing
change outweighed any potential benefits. This does not mean the practice of profit
recovery on variations does not go on, and in any case, not all parts of the supply chain
will benefit.
Whilst we found a reluctant acceptance that a high level of change was part and parcel of
the construction process, we also found a degree of ambiguity as to how change was
initiated. With the increase in the transfer of design risk down to main contractors and
specialist contractors, some change could fall within the scope of design responsibility,
which may require main contractors and subcontractors to absorb these costs and
associated disruption to progress. Furthermore, disputes with clients might be avoided to
maintain client goodwill for the sake of repeat work.
Common sources of change identified by interview participants included:
96
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
With most projects being procured using variants of design and build contracts, an
increasing proportion of the risk and cost of change is held by the main contractor and the
project team. Discussions about certainty of payment centred on issues associated with
variations, which it was claimed have become more difficult to agree as margins on
projects have fallen. Other aspects of market conditions that appear to have accentuated
the causes of change include downward pressure on design fees and later engagement of
specialist contractors, which might delay the completion of design work.
Despite the fact that change increases uncertainty, reduces efficiency and might result in
extra costs in the supply chain, we observed that the cost of change which is generally
accepted as high does not feed back in the system to change behaviour or practice. The
implication is that change management needs to be more effective, and change needs to
be dis-incentivised possibly by ensuring that the initiator of the change bears a greater
proportion of the full economic cost. .
The high incidence of change has been highlighted as an issue because it is endemic, and
because of the potential negative effect of change on the efficiency of a highly fragmented
industry. In our view, change is a significant source of waste. Furthermore, as not all
costs of change are recovered through provisions in contracts, the costs of change affect
all aspects of construction. Reduced volumes of change will increase efficiency, resource
use and should take cost out of the design and construction process.
The ability to introduce changes during design and construction is desirable, but the
industrys presumption should be in support of managed change control. A full
understanding of the implications of change across the supply chain should lead to better
decision-making.
Adoption of Off-Site manufacture and Building Information Modelling (BIM) may help to
create further discipline to support the selective use of change. Given current endemic
levels of change, some external discipline is likely to be necessary encourage appropriate
behaviour and practice.
97
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The context of the research is the widespread adoption of design and build as a
procurement route for complex, high quality buildings. In each case, the constructor took
responsibility for the completion of the design, either through the novation of the clients
original design team, or though the transfer of the design responsibility to an in-house
team. The transfer of the risk includes compliance with planning, regulatory compliance,
building performance, sustainability standards and so on. Detailed aspects of compliance
are transferred further down the chain to specialist contractors with design and
coordination responsibilities. Effective management and mitigation of risk will reduce
waste and cost, and will improve outcomes for the client and for the industry. By contrast,
poor risk management practice has the potential to increase costs within the supply chain
affecting margins and reducing efficiency.
Financial risks associated with low margins, extended payment periods and
progress by other sub-contractors;
The progressive transfer of risk from client, through contractor to supply chain may not
necessarily result in the optimal management of project outcomes particularly if the
98
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
negative outcomes are absorbed by the supply chain. The study has demonstrated that,
in the current market, not only are risks not been fully priced at tender, but also that project
management reduces the ability of the supply chain to mitigate their risk exposure.
In common with all enterprises, construction firms manage their projects as a portfolio, with
better performing jobs compensating for poor returns from under-performing projects. Our
findings are that, through transfer down into the supply chain, risk management is
increasingly being undertaken at a disaggregated level. Over time, the costs associated
with this risk transfer will be built into the cost of work, through the proper pricing of risks in
tenders, potentially increasing project cost. In the meantime, our findings do suggest that
market signals for failure are being blunted, with the costs of risk on one project being
offset by successful outcomes on others.
The study has demonstrated that risks are being passed further down into a very
fragmented supply chain. The study has also shown that current commercial practice is
increasing the level of risk related to incomplete information, reduced lead-in time and
supply chain fragmentation driven by lowest cost bidding.
Risk transfer based on integration of design and construction is a key element of the
industry efficiency agenda. The study suggests that the industry could manage the
delivery of projects more effectively so that risks are reduced or avoided, cutting the costs
of risk, and safeguarding profitability across the project portfolio.
The transfer of risk down into a fragmented supply chain potentially has the effect of
insulating clients and constructors from the immediate impact of risk but also reduces the
efficiency of project delivery, increases overall cost and reduces profitability. Transfer of
risk to a level below which it can be mitigated effectively has the potential to increase the
overall cost levels of the industry.
In seeking to drive out cost and waste, the industry should ensure that risk management
drives optimum outcomes not simply least cost outcomes for the client and constructor
on individual projects. Whilst supply chain members will always be required to accept
design, performance and commercial risks, greater effort in the coordination of the
activities of the project team, so that risk and waste is avoided, will help to drive these
superior outcomes.
99
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Short term cash flow constraints leading to erratic levels of personnel and oversight
on site;
100
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Medium term cash flow constraints inhibiting bidding for work potentially reducing
competitive pressures during the recovery cycle;
Low prices reducing the ability to price travel costs into bids reducing the ability of
businesses to be able to trade outside of their immediate local markets;
The Industrial Strategy is being set at a point in the economic cycle when low demand is
straining collaborative working and reducing the industrys capacity for investment in
capability and growth.
The challenge for the industry, in meeting long term cost reduction targets, is to channel
the high levels of market pressure to induce genuine and sustainable improvements to
performance, while reducing the short-term negative impacts created by low demand.
Areas where attention will be needed in strategy implementation include the maintenance
of positive, collaborative behaviours in the project supply chain, as well as the mitigation of
the effects of supply chain fragmentation on levels of innovation.
We found evidence that supply chain fragmentation acts as a barrier to the flow of good
ideas. Furthermore, that the effect is accentuated by the stress of low levels of demand.
We also found that the market prioritises price over efficiency dis-incentivising the longterm improvement in industry performance.
There is a risk that the bottom-up, industry view that a building costs what it costs will
remain prevalent. This is the opposite of a should cost perspective driven by
affordability, and by the purpose and value delivered by the asset. The implication of the
bottom-up perspective is that when demand returns, margins and prices will rise, and the
costs of buildings to clients will also increase irrespective of affordability.
The construction industrys adaptation to the demands and dynamics of the market
conditions associated with a new normal will take time. However, the lack of perception
in the supply chain that change is needed was striking. The short-term need to cut prices
to win work has resulted in a loss of perspective with regards to the long-term capability
and performance of the industry. There is little evidence that the core messages of the
Wolstenholme report have been absorbed by clients, constructors or their supply chain.
101
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
6.5 Waste
Waste is the stuff in the skip
Defining the issue
When interviewees were asked about waste in the construction industry, most
respondents instinctive response was focused on physical waste which ends up in a skip.
This narrow view of waste was not universal, but it was the norm.
This insight suggests that most participants do not recognise other aspects of duplication
and loss of value as waste. The implication is that it is difficult for a highly fragmented
industry to develop a common cause focused on the adoption of lean principles.
However, the structured interviews showed that other sources of waste are pervasive.
Examples included ill-thought out design leading to sub-optimal and/or expensive
solutions; unnecessary or late variations leading to work being redone; poor scheduling
leading to inefficient use of labour; poor logistics leading to unnecessary and resourcehungry temporary works.
The amount of money, man-hours, materials, effort and time wasted is impossible to
quantify from our survey. However, other studies indicate that potential savings are
substantial and could deliver a portion of Industrial Strategy performance targets.
Insights from the study
We have observed that waste is embedded into industrys structure, risk management
practice and working culture. Addressing the narrow view of waste as a physical byproduct of construction will create opportunities for performance improvement. As an
example of what can be done, the linking of waste reduction to sustainability outcomes has
been very effective. Most major contractors now report publically on their waste reduction
initiatives, demonstrating that the industry can focus collectively on areas of performance
improvement when it is directed to do so.
The narrow view of waste which we encountered and the sometimes blinkered approach
to a wider range of potential waste issues is clearly a behavioural issue. But behaviour is
not to be the only barrier to its removal. Many interviewees said they could significantly cut
cost, time, reworking and material waste. But they did not.
There are many reasons, details of which are given in the summaries of the survey, they
include:
102
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Main contractors and subcontractors are unable to influence design sufficiently due
to the timing of their appointment;
There is often too little lead-in time for contractors and sub-contractors to plan and
coordinate works effectively;
The rebidding of work to reduce cost has the effect of reducing the window for
contractor engagement and lead-in. Re-bidding also potentially disincentivises
early contractor involvement which might deliver better value solutions;
The disruption and waste that can be caused by changes at all levels of the supply
chain is not fully recognised and is not sufficiently disincentivised through pricing
models;
In summary, we found little awareness of opportunity, insufficient ability to act and only
limited incentive to improve performance with respect to removing all sources of waste
from projects.
We have shown that aspects of behaviour and procurement hold back an industry-wide
focus on the reduction of all aspects of waste in process, definition and delivery.
Innovation to reduce waste in construction is inhibited by many interrelated factors.
Given that construction is not a process-driven industry and many of its products are oneoffs the full extent of waste is disguised and the true value of savings is not recognised.
Many of the examples of waste cited by interviewees were repeated from project to
project, and have been known as issues for many years.
High levels of in-built waste will be a major source of opportunity for cost reduction in
pursuit of the Industrial Strategy. However, the sources of waste are so deeply rooted in
the way that the industry operates that even on best practice projects there is insufficient
opportunity and incentive within the supply chain to cut waste.
Changes introduced in the Industrial Strategy may well address some aspects of waste in
the system. However, as the industry is a complex system, other changes may be
counter-productive, and other elements of the operation of the industry may create inertia.
The complex interactions that result in waste will require determined action to drive
improvement. Elimination of waste will require high levels of discipline and focus. The
survey has shown that there is a desire within the supply chain to eliminate waste that can
potentially be channelled to deliver better outcomes.
103
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
To identify areas where cost savings can be made in UK construction supply chains
and the barriers to achieving those savings.
Cash flow constraints resulting from low profitability and limited availability of bank
funding;
Consolidation within the supply chain, resulting either from business closure, or
limited re-investment in plant, equipment and people;
A reduction in levels of cooperation across the supply chain, reducing the extent to
which the supply chain offers integrated solutions; and
The literature review sets out how the Latham Report focused considerable effort on the
improvement of the business environment for the construction supply chain. Evidence
from the structured interviews indicates that there is a growing perception amongst supply
chain members that a number of positive collaborative working practices that emerged
104
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
post Latham have been adversely affected by working practices that have evolved in
response to the 2008 construction downturn.
Practices introduced to reduce cost, including rebidding of sub-contractor packages,
transfer of design and commercial risk based on limited information and extended payment
terms appear to be reducing the ability and incentive for a project supply chain to work
collaboratively to drive out waste.
Challenging market conditions are also reducing the ability of the supply chain to fund
increased cash flow associated with business expansion.
The performance agenda set by the Egan Review also identified the supply chain as an
agent of change. However, based on the limited evidence of this report, the supply chain
which the review had in mind is not as capable of driving the change agenda as it should
be. This is partly as a result of the erosion of the partnering/early contractor engagement
culture, and partly as a result of the reality of a highly disaggregated supply chain. It is
easy to see that, even if there were a high level of cooperation between Tiers 1 and 2,
then engagement with specialist contractors at tiers below level 2 could remain a
challenge. One of the Egan performance improvement solutions was to encourage
greater adoption of off-site manufacture. We have found outstanding examples in the
study, but also continue to see high levels of on-site coordination of large numbers of subcontractors. Performance has improved, but there clearly is potential for further gains.
Evidence for this potential comes from the industrys low take-up of benchmarking and
performance assessment. Another key Egan improvement route was the use of
performance measures to add discipline to long term relationships. The awareness of
benchmarking and other measures of performance within the supply chain was shown to
be quite low evidencing many of the findings of the Wolstenholme Review, which
concludes that industry commitment to reform had only been skin deep, and indeed that
the industry had taken its eye off the reform agenda.
As the construction industry emerges from an extended downturn, it is arguable that the
supply chain is ill-equipped behaviourally and financially to set and maintain a trajectory
towards high performance and lower cost, time and carbon.
This conclusion is however premature, as it ignores many of the changes being driven by
clients, contractors, technology and suppliers that will sustain momentum towards
performance improvement.
105
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Coordination of design and assembly across the supply chain, potentially based in
sharable asset information e.g. BIM
Wider adoption of the integrator role of supply chain management, either at Tiers 1
or r 2, placing greater emphasis on the management and coordination of related
trades optimising performance and potentially securing client and supply chain
benefits through repeat work and volume savings.
Commercial behaviours throughout the supply chain that reduce incentives for
collaborative and cooperative behaviours, driven by current market conditions;
The highly fragmented supply chain particularly related to complex subcontractors. This potentially introduces waste and reduces opportunities for cost
reduction via volume-based procurement, category management etc.;
Methods of contractor selection and incentivisation, based on least cost rather than
should cost procurement strategy;
Inappropriate risk transfer down the supply chain, potentially introducing waste into
solution development and on-site construction.
106
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Create and maintain momentum around an agenda for change that involves all
levels of the supply chain. The agenda for change should counter widely held
107
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
perceptions that current working methods will deliver the Industrial Strategy
improvement targets;
The industry should invest in the development of the quality of site management.
The investment should include recognition and profile, skills development, career
paths and technical and people management capability necessary to optimise
performance;
108
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Wider promotion of the awareness of the process waste that is built into so much
construction activity. Examples include procurement activity at all levels of the
supply chain, rebuilding delivery teams on a project-by-project basis and the wider
impacts of change;
The UK Construction Industry should adapt to its structure, in the same way that the
Amazon and E Bay business model has made a virtue of its highly distributed tail
of specialist small-scale suppliers.
109
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Annex 1
Project methodology
This section of the report outlines the approach adopted by the team and critically reviews
the effectiveness of the adopted methodology.
Methodology
The key components of the project methodology are as follows:
Project identification the team has used a matched pairs approach where we
selected sample projects which adopted different approaches to the delivery of a
similar building type. The building types compared are commercial offices and
schools, and the dimensions of difference included:
o National vs. regional contractor;
o Direct vs. sub-contract labour resources;
o Main contractor vs. sub-contractor management of specialist sub-contracts
(e.g. Building Services);
o Utilisation of innovative construction methods e.g. panelised construction.
Whilst it has not been possible to directly relate specific aspects of delivery method
to project performance, the matched pair approach helped to ensure that the supply
chain survey was representative of a range of industry practice.
Value tracking through the supply chain we have adopted a Commercial Cost
Assurance methodology to provide an analysis of the supply chains of main
contractors and selected specialist sub-contractors. The benefits of the approach
include:
o Details of supply chain on-costs obtained without reference to actual project
costs;
o Consistent and comprehensive overview of the principal contractor cost
base;
o Detailed but selective analysis of the supply chains of a limited number of
specialist contractors.
110
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
29
Financial arrangements
rd
Details of 3 tier suppliers will be obtained on a selective basis through later phases of the research
111
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Design management
Site management
Price determination
112
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
variation in the scoring by interviewers. This is unavoidable, although the team did
consider the normalising of scoring;
113
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Conclusions
In conclusion, the quantitative analysis provided an effective means of gathering structured
information, enabling the team to quantify what are in essence qualitative survey
responses.
In summary, given the constraints of time and risk that response rates would be low the
survey achieved:
Fresh insights enabling us to recognise and develop cross-cutting themes that are
presented in the report.
114
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Annex 2
Literature Review main recommendations of Construction Industry Reports
This annex features brief summaries of the recommendations of the three major reports
featured in the Literature Review, The Latham Report (1994), The Egan Report (1998) and
the Wolstenholme Report (2009)
1. Summary of Latham Report Recommendations
The Construction Industry Council (CIC) should prepare a guide to briefing. It should also be part of
the contractual process that the client should approve the design brief by signing it off.
3. Code of Practice
The DoE should coordinate a construction strategy code of practice (CSCP) to inform and advise
clients.
The CSCP should be designed to assist clients to meet their objectives and to obtain value for
money. The guide should also be designed to harness clients purchasing power to improve the
long-term performance of the industry.
To amend the standard JCT and ICE forms to take account of the principles set in the report.
115
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The structures of the CCSJC and the JCT need substantial change.
A joint liaison committee should be formed to consider amendments to the NEC and to build up a
complete family of documents around it.
Public and private sector should begin to use the NEC, and phase out bespoke documents.
The roles and duties of the project sponsor need clearer definition. Government project sponsors
should have sufficient expertise to fulfil their roles effectively.
A list of contractors and subcontractor should be kept for public sector work. It should develop into
a quality register of approved firms.
16. Tendering
Detailed advice should be included in the CSCP to all public sector clients on the specific
requirements for selective tendering in accordance with European Union Directives.
Clients should adhere to the recommended numbers of tenders for single stage tendering in the
NJCC Code of Procedure.
The aim should be for the DoE to set up a central qualification list based on CMIS of contractors
and subcontractors seeking public sector work. Such a list should also be supported by a national
scheme of guidance for quality assessment of tenders.
18. Selection of subcontractors
Set up a central qualification list based on CMIS of contractors and subcontractors seeking public
sector work. Such a list should also be supported by a national scheme of guidance for quality
assessment of tenders. This should include a commitment to short tender lists, and selection on
quality and price as well as client engagement in the appointment of Tier 1 sub-contractors
19. Partnering
Public sector clients should experiment with partnering arrangements with the intention to build-up
long-term relationships.
20. Training
The industry should make specific provisions for training, from flexible modern apprenticeships to
developed NVQs.
116
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
The CIEC and CLG should set up a high-powered task force to report quickly on implementing the
Building Towards 2001 recommendations.
A task force should be set up with the CIC and Government to agree an implementation of the
agreed desired objectives for professional education.
Expenditure on research and development in the industry is generally thought to be inadequate and
dissemination of it faces real difficulties. Government should take steps to involve clients in its
existing research strategy programme.
A target of 30% real cost reduction over 5 years should be accepted by Ministers by the year 2000.
The NEC or adjusted standard form JCT and CCSJC should be adopted to address unfair contract
conditions, including timing and conditions of payment, the right of immediate adjudication and
rights of set-off or contra charge
26. Adjudication
A system of adjudication should be introduced within all the Standard Forms of Contract (except
where comparable arrangements already exist for mediation or conciliation) and that this should be
underpinned by legislation.
Mandatory trust funds for payment should be established for construction work governed by formal
conditions of contract.
The Construction Contracts Bill should include provisions to implement the majority report of the
working party on liability.
The Construction Contracts Bill should contain a provision for compulsory latent defects insurance
for 10 years from practical completion.
30. Creation of a delivery mechanism a standing strategic group of the construction industry to
address this report and industry level requirements
A Standing Strategic Group of the Construction Industry should meet twice a year.
117
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Product development
Project implementation
Production of components
Sustained improvement
Enabling improvement
Decent working conditions
Standardisation
Technology as a tool
Better regulation
118
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Both clients and suppliers need a better understanding of how the relatively small up-front
costs of design and construction leverage much higher costs downstream for end users in
terms of facilities management, business costs and ultimate value.
The latter may be measured in terms of business (financial), social (education, healthcare,
etc.) and environmental outcomes. Such a powerful argument has captured audiences'
imagination whenever Constructing Excellence has exposed it.
The construction industry must become a sustainability leader and adopt carbon efficiency
into all our processes. Our failure so far to link ourselves in the public's mind with one of
the major issues of the day, namely climate change, is a huge missed opportunity for our
industry. A 'green recovery' from the current industry recession is now required. Put
simply, our vision is of a future where young people who want a better world will be able to
fulfil their aims by joining our industry to deliver a low carbon economy, rather than by
devoting themselves to environmental protest.
Our industry bodies and professional associations must collaborate to represent our
industry effectively to Government and other key stakeholders. One option may be to give
the Strategic Forum for Construction greater authority and resources. Alternatively, the UK
Contractors Group or the Construction Industry Council needs to expand their sector
coverage. If we want the attention of Government, we should focus on how improved
performance in our industry can help to reduce Government costs.
Business models are fundamental to changing behaviour. We must move away from
models that encourage short term thinking and find ways to incentivise long term value
creation. This could include incentivising developers to hold and manage property, rather
than developing to sell, encouraging contractors to move away from subcontracting to
business models based on vertical integration or integrated teams, or for suppliers to take
a financial interest in the on-going performance of their completed projects, rather than
walking away after installation.
119
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
We must develop a new generation of leaders who can communicate their vision and drive
change in culture and behaviours. We need leaders who can help the public understand
our contribution to a successful society and economy and help to attract more of the best
recruits to our industry. G4C shows that the younger generation has the right aptitudes
and desire for change, so our challenge is to speed up the natural pace of evolution. There
needs to be a major co-ordinated push across the industry to improve the quality of
leadership development, both at a project team level but particularly at the top of the
industry.
Together with the education sector and professional bodies, we need to promote a wider
strategic understanding of the built environment and how all disciplines inter-relate to
deliver solutions.
All customers in the chain need to professionalise their procurement to achieve best value,
rather than focusing on lowest price. They also need to be more open to invite and assess
innovative proposals by suppliers. The inability to assess alternative bids or those based
on outcome specifications, or to take account of both capital and revenue expenditure let
alone value, severely constrains innovation at the point at which team members are
selected.
In the current economic downturn, clients will struggle to lead the way we need suppliers
to show how they can create additional value. Industry firms and their clients have a
strategic choice turn back to the bad old ways of lowest-price tendering with negative
margins and a subsequent claims battle, or embrace beneficial, sustainable change. This
starts with proper collaborative working including integrated, lean processes. Evidence
exists for this latter course of action, but Constructing Excellence needs to be more
effective in presenting this data to persuade senior decision-makers.
The report also identified 22 quick win themes to encourage leaders in the industry,
government and clients to re-consider current practice, focusing on how it might need to
change to drive improvement. These themes remain highly relevant. They are described
in the Wolstenholme review as follows:
Industry Leaders
1. Take the lead for the industry's change agenda. Do not wait for clients to give you
permission to change. It may be another five or ten years before they will be in a position
to help.
2. Exploit the recession to look for your own case for change lift the industry by
searching for better profits, funded through real value improvements, change and
productivity.
120
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
3. Seek incentives for delivering innovative solutions. Your customers want them (and
need them) but are not sure how to ask!
4. Do not rely blindly upon other peoples recipes for success. Interpret and apply in your
own way to gain full advantage and ownership of the changes.
5. The younger generation is telling you to look at construction as a part of a wider, and
much more important, process that delivers the built environment. You are building stuff
now that should still be fit for purpose in 2070. Are you?
6. Up your game by attracting, training and retaining your future leaders. A lot of them are
choosing to bypass our industry altogether.
7. Graduates leave university with a technical qualification. Institutions will guide them to
professional status. You have to convert them into people who you would trust to lead and
grow your business. Steal some ideas from other sectors who understand what graduate
and professional training really means.
8. People management should not be a transactional process employees are not
'spanners on inventories'. Develop talent management as a core skill along with
organisational design and change.
9. Continue to support efforts to improve the image of the industry by promoting the vital
role of the built environment from an early age in schools.
Government
10. Understand the strategic value of infrastructure and develop a long-term vision for a
sustainable UK built environment.
11. Develop policies to incentivise innovation and change in our industry to help speed up
the modernisation process and focus the industry on the next steps.
12. Regulatory models have pulled the industry in the right direction in some sectors, along
with many variants of the PFI model. Build on these to help the industry's change agenda
succeed.
13. Plan for the nation's future infrastructure. It would help everybody if the plan was
integrated and funded. If you are about to make cuts in infrastructure spending then you
need to be honest with us. We will need to plan for the downturn or lose the momentum
and skills that we are building.
14. Leadership makes a huge difference. Choose a Minister responsible for the built
environment who has a real purpose and ambition and who can stay in post long enough
to make a real difference.
15. Support the Chief Construction Advisers mission to federate the departments who
influence the Industry's agenda and who themselves have to act as exemplars in their
121
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
capacity as construction clients. He or she has to emulate the excellent profile that Sir
David King has developed as Chief Scientific Adviser.
16. Supporting the education and professional development of the industry by working with
universities to create 'system thinkers' who challenge silo approaches to problem solving.
Clients
17. Think strategically the world is changing. Assume that legislation will get radically
tougher in order to meet the environmental agenda. Understand how you need to rethink
your business models to achieve a step change in sustainability performance. Achieving
BREEAM 'Excellent' is a start but it will not solve the big issues.
18. Improve your team's ability to develop and control the brief. You and your consultant
teams are injecting waste into the procurement process by specifying one-offs and by
introducing late changes when it is inefficient and expensive to implement them.
19. Challenge your consultants to develop more options for risk transfer. Passing the risk
down the supply chain effectively turns off the innovation tap. The more innovative the
solution the closer you will need to get to the supply chain and the greater the potential to
generate long-term value. Work with the supply chain to understand where they are really
best placed to manage risks on your behalf, and to deliver best value when they do so.
20. The supply chain wants your repeat business. An effective way to generate value is to
incentivise real improvements in output in return for a 'pipeline of opportunity'. If you align
longer term objectives in this way, you will create relationships based on trust with your
consultant team and suppliers.
21. Few clients incentivise their teams to find radical savings in operating expenditure over
the life of an investment and yet the business case to do so is compelling.
22. Safety always act as if you are personally responsible for safety. Your behaviour and
attitude as a client will be reflected by the project team. If the moral case for investing in an
environment where everybody goes home safely is not compelling enough, consider the
true cost of poor safety on your programme and the reputational damage to your company.
122
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Annex 3
Literature Review - Bibliography
Cabinet Office (2011) Government Construction Strategy May 2011 [online]; available from
https://www.gov.uk/government/publications/government-construction-strategy [accessed
June 2013]
Cabinet Office (2012) Government Construction Strategy One year on report and action
plan update July 2012 [online]; available from
https://www.gov.uk/government/publications/government-construction-strategy [accessed
June 2013]
Chartered Institute of Building, CIOB (2010) A Report Exploring Procurement in the
Construction Industry [online]; available from
http://www.ciob.org/sites/ciob.org.uk/files/Procurement%20in%20the%20Construction%20I
ndustry.pdf [accessed June 2013].
Cheng, E. W. L. and Li, H. (2004) Contractor Selection Using the Analytic Network
Process: Construction Management and Economics. 22.(10) pp.1021-1032.
CIB Working Group 3. (1997) Code of Practice for the Selection of Subcontractors.
London: Thomas Telford.
CITB (2012), Blueprint for UK Construction Skills 2012 2016 [online]; available from
http://www.citb.co.uk/Documents/research/csn%20outputs/blueprint-uk-construction-skills2012-2016.pdf [accessed June 2013]
Cox, A. Townsend, M (1997) Latham as half-way house: a relational competence
approach to better practice in construction procurement. Engineering, Construction and
Architectural Management 4 | 2,143-158
Davis, M. (1995) Achievements, Action Plans and How Clients Can Help. The Latham
Implementation
Plan Conference, 25/26 October, Cabot Hall, London.
Designingbuildings.co.uk (2013) Article: Latham Report [online]; available from
http://www.designingbuildings.co.uk/wiki/Latham_Report [accessed June 2013].
Egan, J (1998) Rethinking construction: the report of the construction task force (The Egan
Report). Department of the Environment, Transport and the Regions, London: HMSO
Egemen, M and Mohamed, N. A. (2005) Different Approaches of Clients and Consultants
to Contractors Qualification and Selection Journal of Civil Engineering and Management.
11.(4) pp267-276
123
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
124
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Olomolaiye, P.O., Jayawardane, A.K.W. and Harris, F.C. (1998), Construction Productivity
Management, Longman, Harlow.
Wolstenhome, A. (2009) Never Waste a Good Crisis A Review of Progress since
Rethinking Construction and Thoughts for Our Future Constructing Excellence | Published
October 2009 [accessed June 2013] www.constructingexcellence.org.uk
http://www.constructingexcellence.org.uk/pdf/Wolstenholme_Report_Oct_2009.pdf
Wong, C. H., Holt, G. D. and Cooper, P. A. (2000) Lowest Price or Value? Investigation of
UK Construction Clients Tender Selection Process: Construction Management and
Economics. 18.(7) pp.767-774
125
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy
Supply Chain Analysis into the Construction Industry A Report for the Construction Industrial Strategy